Missed Q-Bank Question Terms

The minimum face amount of a negotiable CD is:

$100,000.00

If a publicly traded corporation was going to sell a wholly-owned subsidiary, the information would be made available through the filing of a Form A) 13-F B) 10-Q C) 8-K D) 10-K

8-K

A European corporation seeking a short-term loan would probably be most concerned about an increase to: A) the U.S. Treasury bill rate B) the Eurobond rate C) the Fed funds rate D) the LIBOR

the LIBOR

Which of the following statements regarding a QDRO is correct? A) A QDRO must comply with ERISA to be effective. B) A QDRO applies to assets in a qualified employer plan and a traditional IRA. C) A QDRO applies only to assets in a qualified employer plan. D) A QDRO applies only to assets in a traditional IRA.

A QDRO applies only to assets in a qualified employer plan.

Suzy Stanton's wealthy Uncle Ray is a client of yours and is asking for some advice on funding a program to save for Suzy's college education with the lowest possible tax impact. Ray tells you that he set up an UGMA account for Suzy's older brother, Sammy; but, when Sammy turned 18, he took the money, bought a motorcycle, and joined a commune. Ray wants to avoid seeing something like that happen again. What would probably be the best suggestion to help Ray meet his objectives? A) A Section 529 plan B) A Roth IRA for Suzy with Ray's name as co-owner C) An UTMA account D) A living trust

A Section 529 plan The Section 529 plan will give the uncle both tax savings and, because in this plan the assets remain under the control of the donor, the ability to retain the funds if Suzy does not use them for higher education.

In which of the following cases is a 3rd-party trading authorization acceptable? A) A client's secretary presents a card signed by the client stating that the secretary can trade in the account while the client is on a business trip. B) The trades will be made through a broker-dealer under common control with the investment adviser. C) An investment adviser makes a hospital visit to a client who was critically injured. While there, the client gives oral instructions to permit her daughter to trade in the account. D) The spouse of a client sends an email to the investment adviser saying that the client has given authorization to the spouse to trade in the account.

A client's secretary presents a card signed by the client stating that the secretary can trade in the account while the client is on a business trip. Third-party trading authorization must be in writing; oral authority is never acceptable. If the email came from the client directly instead of the spouse, it would be acceptable.

Under which of the following circumstances will a private placement fail to qualify for exemption from registration under the USA? A) A modest commission is paid to the agents who sell the offering to noninstitutional clients. B) The offer is directed to only 5 individuals during any 12-month period. C) The seller reasonably believes that individual purchasers are buying for investment purposes rather than immediate resale. D) A bank holding company purchases the offering for trading purposes rather than investment purposes.

A modest commission is paid to the agents who sell the offering to noninstitutional clients.

If an agent has been given limited power of attorney to exercise discretion in an account by the account holder, which of the following statements is TRUE? A) The power of attorney must be renewed annually by the account holder. B) Each order must receive the prior approval of the agent's manager before it is entered. C) The account holder is not permitted to enter new orders independently. D) A designated supervisory individual must frequently review the account.

A designated supervisory individual must frequently review the account.

If a client prefers mutual fund investments in companies that primarily generate capital appreciation to companies that pay a steady dividend, what type of mutual fund and associated investment objective would you recommend? A) A growth and income fund B) A growth fund C) An index fund D) An income fund

A growth fund

Which of the following will most likely be the most volatile investment over a short-term period? A) An intermediate corporate bond fund B) A money market fund C) A growth-oriented common stock fund D) An intermediate municipal bond fund

A growth-oriented common stock fund

The Wrights live in Texas, where Maria Wright has had an extremely successful cattle business for a number of years. As a very generous person, how much money can Maria give to her spouse, a Canadian citizen, in 2019 without incurring gift tax consequences?

A limited amount because her spouse is not a U.S. citizen

For purposes of safeguarding customer information, which of the following would be considered a covered account? A) An account in the name of the State of X employee pension fund B) A margin account in the name of the Interglobal Hedge Fund C) A margin account in the name of Mary Beth Simmons D) An account in the name of the Wells Morgan Bank

A margin account in the name of Mary Beth Simmons The term covered account does not apply to institutional customers, such as banks, pension funds, and investment companies.

If having discretion over $100 million or more in 13(f) securities, which of the following would be exempt from filing a Form 13F? A) A natural person who exercises investment discretion over her own account B) An investment adviser that manages mutual fund assets C) A natural person who exercises investment discretion over the account of any other natural person or entity D) A trustee

A natural person who exercises investment discretion over her own account

Which of the following financial instruments is NOT a derivative? A) LEAPS B) A call option C) A share of stock D) A put option

A share of stock A derivative is a type of financial instrument that derives its value from another asset or combination of assets. The best known examples of derivatives are options, of which puts, calls, and LEAPS are examples.

Ms. Foster is retiring in 2 years and will need income. Which of the following mutual fund types would most likely be the least desirable for her?

A special situation fund

Which of the following stocks would probably be most appealing to a value investor? A) A stock with a relatively high price-to-book value ratio B) A stock that has relatively high volatility C) A stock with a relatively low P/E ratio D) A stock with a relatively low dividend yield

A stock with a relatively low P/E ratio

Investing in which of the following would maximize after-tax income and diversify the portfolio for a high-tax-bracket investor? A) Short-term municipal notes B) Preferred stock mutual fund C) GNMAs D) A unit investment trust whose portfolio consists of municipal bonds

A unit investment trust whose portfolio consists of municipal bonds

The Straitened Corporation has filed for bankruptcy. One of your clients held a mortgage secured by the corporation's building. When the building was sold, the proceeds were less than the mortgage balance creating a deficiency balance. Where does this investor's claim stand? A) As a general creditor on a pro rata basis B) After the unsecured creditors C) There is no further claim once the building has been sold D) After the secured creditors

A) As a general creditor on a pro rata basis

To make a quantitative evaluation using the present value computation, which of the following is NOT needed? A) Account value at the beginning of the period B) Anticipated rate of return of the portfolio C) Account value at the end of the period D) Time period involved

A) Account value at the beginning of the period Present value is calculated to determine the amount required now to have a specified value at some time in the future. It is what we are looking for so we don't have it now.

Investments in which of the following offer the best long-term protection against inflation? A) Common stock B) Corporate bonds C) Government bonds D) Fixed annuities

A) Common stock Common stocks have historically offered returns that outpace inflation over the long term.

When an analyst takes a stock's actual return minus the risk-free return and divides that remainder by the stock's standard deviation, the result is A) the beta. B) the expected return. C) the alpha. D) the Sharpe ratio.

the Sharpe ratio.

Which of the following statements are TRUE of a discretionary account at a broker-dealer's? The opening must be approved by a supervisory person of the firm. It must be reviewed frequently. A discretionary order may be placed once the customer has placed a power of attorney in the mail. It must be approved by the SEC. A) I and III B) III and IV C) I and II D) II and IV

A) I and II. I. The opening must be approved by a supervisory person of the firm. II. It must be reviewed frequently. A new discretionary account must first be approved by a principal, orders must be approved on the day of the trade, and the account must be reviewed frequently for suitability.

If yields should change by 75 basis points, which of the following bonds would have the greatest price change?

ABC 4s 2040 When all coupons are the same, the bond with the longest maturity will have the longest duration and, therefore, will be subject to the greatest price fluctuations.

Under the Uniform Securities Act, all of the following are required to be registered as investment adviser representatives EXCEPT A) a vice president of ABD Advisers, Inc., who serves on the firm's advisory committee B) ABD Advisers, Inc. C) an individual who furnishes investment advice to clients of ABD Advisers, Inc. D) an employee who solicits new customers for ABD Advisers, Inc.

ABD Advisers, Inc.

Under the Investment Advisers Act of 1940, which of the following is TRUE about the use of the term "investment counsel" by investment advisers? A) The use of the term is prohibited under any circumstances. B) Advisers may use the term only if their principal business is acting as an investment adviser and a substantial part of their business consists of providing continuous advice based on a client's individual needs. C) Advisers may use the term only if they are attorneys. D) Advisers may use the term without restriction as long as they are registered.

Advisers may use the term only if their principal business is acting as an investment adviser and a substantial part of their business consists of providing continuous advice based on a client's individual needs.

Which of the following investment vehicles is NOT considered a security under the Uniform Securities Act? A) Common stock issued and sold intrastate B) Commercial paper maturing in fewer than 270 days C) U.S. government bonds D) Annuities with a fixed rate of return

Annuities with a fixed rate of return

Which of the following statements is TRUE? A) An individual may not buy or sell securities unless the transaction is made by a licensed broker-dealer or agents. B) All securities must be registered with the appropriate state Administrator. C) An agent's registration may never be revoked without the opportunity for a hearing. D) In the sale of U.S. government securities, a misrepresentation or other fraudulent practice by an agent would not fall under the jurisdiction of the state security Administrator because these securities are exempt.

An agent's registration may never be revoked without the opportunity for a hearing.

A nonqualified, single premium variable annuity differs from a Keogh plan in that A) all payouts are fully taxable in a Keogh plan B) it is open to self-employed persons C) both are subject to early withdrawal penalties D) earnings are tax deferred

all payouts are fully taxable in a Keogh plan

In which of the following cases is the exemption from registration with the SEC not based on the value of assets under management? A) An investment adviser with assets under management of less than $25 million B) An investment adviser that acts as an adviser solely to one or more venture capital funds C) An investment adviser that acts as an adviser solely to private funds and has assets under management in the United States of less than $150 million D) An investment adviser that acts as an adviser solely to one or more national banks

An investment adviser that acts as an adviser solely to one or more venture capital funds

Which of the following expressions describes the current yield of a bond? A) Annual interest payment divided by current market price B) Annual interest payment divided by par value C) Yield to maturity divided by current market price D) Yield to maturity divided by par value

Annual interest payment divided by current market price

A complex trust has the following income for the year: $1,500 in taxable interest, $2,000 in dividends (reinvested in the stock), and $3,000 in tax-exempt interest. In addition, the portfolio realized $3,500 in capital gains that were reinvested in the corpus. What is the distributable net income (DNI) for the trust? A) $1,500 B) $10,000 C) $4,500 D) $6,500

Answer: D All investment income, regardless of source, will be considered DNI and will be included in the taxable income calculation to the trust unless distributed. Reinvested capital gains are not part of a trust's DNI.

If Maria turned 72 on August 16, 2020, when must the first required minimum distribution (RMD) be made from her IRA? A) April 1, 2022 B) April 1, 2021 C) December 31, 2021 D) December 31, 2020

April 1, 2021 The withdrawal required for your first RMD, must be made by April 1 after the year you turn 72. All subsequent RMD withdrawals must be taken by Dec. 31 each year.

An investment adviser representative is preparing a financial plan for a new client. As part of the data collection process, the IAR needs to collect the relevant information to analyze the client's cash flow. Included in the cash flow statement would be all of the following EXCEPT A) assets B) income taxes C) salary D) interest on savings

Assets

If information filed with the Administrator by a broker-dealer as part of its registration changes in a material way, the registrant must

amend or update the information promptly regardless of the renewal date

A highly compensated customer owns 200 shares of Datawaq. He bought it 20 years ago, and it is now trading at 90. If he donates the stock to a 501(c)(3) charity, how much can he claim as a tax deduction for this donation? A) $6,000 B) $18,000 C) $12,000 D) $0

B) $18,000 Securities can be gifted to charity and deducted at their fair market value, as long as they have been held more than one year. The fair market value of the deduction allowed for 200 shares is 200 multiplied by the current market price of the stock, or $18,000.

Which of the following are prohibited practices? I. An investment advisory firm organized as a partnership failing to inform its clients of the departure of a partner with a very small interest in the partnership II. An investment advisory firm charging an annual fee equal to 2% of the first $250,000 in assets under management, 1% of the next $500,000, and 0.5% for everything in excess of $750,000 III. Without client consent, the majority stockholder of a registered investment adviser pledging his stock as collateral for a loan taken out by the firm to expand its services IV. Engaging in agency cross transactions A) I and IV B) I and III C) I and II D) III and IV

B) I and III An investment advisory firm organized as a partnership failing to inform its clients of the departure of a partner with a very small interest in the partnership Without client consent, the majority stockholder of a registered investment adviser pledging his stock as collateral for a loan taken out by the firm to expand its services

A client of yours owns some convertible preferred stock. She notices an article in the business section of her local newspaper that reports the company is going to pay a 20% stock dividend on their common stock. She wants to know how this will affect her? A) She will also receive 20% more shares because preferred stock has a priority claim ahead of common. B) If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend. C) There will be no effect. D) More than likely, the price of the preferred stock will rise.

B) If there is an antidilution clause, her conversion privilege will permit her to acquire 20% more shares than before the stock dividend.

Your client in the 28% federal income tax bracket currently owns some U.S. government bonds with a coupon yield of 6%. In order to receive the same income after taxes, she would need to buy municipal bonds with a coupon of A) 7.68% B) 4.32% C) 1.68% D) 6.00%

B) 4.32% Because the 6% on the government bond is fully taxable on a federal basis, the client receives a net of 4.32% ($60 per bond less 28% in taxes {$16.80}, or $43.20 per year). Interest on municipal bonds is tax free, so a 4.32% coupon will result in the same amount of after-tax income.

If a federal covered investment adviser wishes to sell his business to another advisory firm, which of the following statements is TRUE? A) The sale must be approved by the SEC. B) No approvals are required. C) The sale must be approved by the Administrator. D) The sale must be approved by each customer of the selling adviser.

B) No approvals are required. An investment adviser does not need the approval of clients to sell the business. However, technically, the sale means that the advisory contracts will be assigned and that cannot be done without client consent. In an event such as this, the clients would be given the choice of having the new firm manage their assets or taking their accounts elsewhere.

A business organized as which of the following pays federal income tax on its income? A) Sole proprietorship B) S corporation C) LLC D) Partnership

B) S corporation

Under industry rules, customers who wish to trade options must receive a copy of the options disclosure document (ODD) A) within 15 days of account approval B) at or before account approval C) at or before the mailing of the confirmation representing the first options trade D) at or before the mailing of the next monthly statement

B) at or before account approval

The NASAA Model Rule on Custody Requirements for Investment Advisers requires that an adviser with custody of client funds or securities do all of the following EXCEPT A) submit an audited balance sheet to the Administrator with Part 2A of Form ADV each year B) send monthly account statements to clients C) submit to an annual surprise audit conducted by an independent accountant D) deposit client funds into separate accounts and provide written notice to clients about the location of their assets

B) Send monthly account statements to clients

Which of the following is NOT affected by the issuance of a bond? A) Assets B) Shareholders' equity C) Working capital D) Total liabilities

B) Shareholders equity

Which of the following is not included in fundamental analysis of a company? A) The study of a firm's position within its industry. B) The study of a company's historical stock prices and trading volume. C) The study of a firm's financial statements. D) The study of the direction of the economy.

B) The study of a company's historical stock prices and trading volume.

Which of the following conditions would most likely meet compliance standards of state regulators? A) At a minimum, a firm that permits use of social media sites must hold biannual training as part of its continuing education obligations. B) Maintaining an under-the-radar system of monitoring social media use by its agents is permissible when determining compliance with NASAA's rules. C) Both supervisory personnel and agents need to understand the difference between interactive and static content. D) Only those in a supervisory role need to recognize the difference between business and nonbusiness communications.

Both supervisory personnel and agents need to understand the difference between interactive and static content.

A broker-dealer is registered in States A and B. An agent of theirs is registered in State A, and one of the agent's clients moves from State A to State C. If the agent wishes to continue to do business with this client, which of the following statements is CORRECT? A) Only the broker-dealer must register in State C. B) As long as they have 5 or fewer retail clients in State C, neither the broker-dealer nor the agent must register there. C) Only the agent must register in State C. D) Both the broker-dealer and the agent must register in State C.

Both the broker-dealer and the agent must register in State C.

A client owns an investment-grade bond that has a coupon of 7% and is priced to yield 5.4%. If similarly rated bonds are being issued today with coupons of 5%, it would be expected that the client's bond

has a positive net present value

Which of the following statements is an accurate description of dollar cost averaging? A) An investor averages the costs of his shares purchased and then enters limit orders to purchase additional shares at the average price. B) An investor buys the same number of shares each interval, averaging his purchase prices over time. C) An investor invests a set amount of money each interval to buy more shares when the prices are low and fewer shares when prices are high. D) An investor sells shares when the market rises and buys shares when the market declines in order to average his costs.

C) An investor invests a set amount of money each interval to buy more shares when the prices are low and fewer shares when prices are high.

A client in the 30% tax bracket owns a 5% XYZ, Inc., debenture due to mature shortly. What yield in a municipal will give him the same after-tax return that he now has with his debenture? A) 1.50% B) 2% C) 3.50% D) 5.30%

C) 3.50%

Current market interest rates are 6%. A bond with an 8% coupon would be most likely to have a net present value of zero when the bond is A) called for redemption. B) selling at a discount. C) selling at par. D) selling at a premium.

selling at a premium

Which of the following statements regarding ADRs are TRUE? I. The securities are vehicles used to facilitate U.S. trading of foreign securities. II. Dividends are received in the foreign currency. III. Holders have foreign currency risk. IV. The receipts are issued by a foreign branch of a domestic bank. A) I, III and IV B) II and IV C) I and III D) I, II and III

C) I and III I. The securities are vehicles used to facilitate U.S. trading of foreign securities. III. Holders have foreign currency risk.

A portfolio that is primarily invested in corporate bonds would be subject to I. credit risk II. interest rate risk III. opportunity cost IV. purchasing power risk A) II and IV B) I, II, and IV C) I, II, III, and IV D) I and II

C) I, II, III, and IV

Which items would change if a company declared a cash dividend? I. Working capital II. Total assets III. Total liabilities IV. Shareholders' equity

C) I, III, and IV Working capital Total liabilities Shareholders' equity

Which of the following is not a characteristic of expansionary monetary policy? A) The money supply will increase. B) Interest rates may decline. C) The reserve requirement will be increased. D) More funds are available for banks to lend to borrowers.

C) The reserve requirement will be increased. Expansionary monetary policy is also referred to as easy monetary policy. The Federal Reserve follows an easy monetary policy when it wants to expand the level of income and employment. The Federal Reserve may decrease rather than increase the reserve requirement affording banks the opportunity to loan more money to borrowers.

If a call option with an exercise price of $50 is purchased for $300, the maximum amount the investor can lose is A) $4,700 B) unlimited C) $5,000 D) $300

D) $300 D. Think about it - if you bought something for $300 (the premium on an option is per 100 shares). What is the most you can ever lose with anything of any type that you pay $300 for? Your purchase price!

When an analyst adds back the current year's depreciation to the net income, she is computing the company's A) cash flow from operations B) cash flow from investments C) net value of fixed assets D) earnings per share

Cash flow from operations is computed by adding the year's depreciation deduction to the net income.

Who is obligated for the payment of taxes in an UTMA account?

Child

Asset-based sales charges will generally be lowest when holding which of the following mutual fund share classes?

Class A shares

Tammy has a strong feeling about a particular investment's future performance. She is constantly seeking information to validate her belief that this investment will greatly appreciate. However, she is dismissing any information which is contradictory to this stance. This is an example of which of the following?

Confirmation bias

A customer has just died. If his wife asks you what amount of federal estate tax will be imposed on the transfer of their personal property to her name, which of the following responses would be best? A) The amount of tax will depend on the size of the estate to be transferred. B) Consult a qualified tax specialist C) The amount of tax will depend on your late husband's tax bracket. D) The amount may be prorated over the next 4 years.

Consult a qualified tax specialist

Lena died at the age of 50 with $100,000 in her traditional IRA account. In addition to income taxes due on the distribution, her beneficiary, who is 52, will have to pay a premature distribution penalty tax of how much? A) $6,000 B) $15,000 C) $10,000 D) $0

D) $0 The premature distribution penalty does not apply if the distribution is made after the death of the account owner, regardless of the age of the owner or the beneficiary.

Which of the following choices offers the highest tax-equivalent yield? A) 5% municipal bond to an individual in the 35% tax bracket B) 5.5% municipal bond to an individual in the 28% tax bracket C) 5.8% municipal bond to an individual in the 25% tax bracket D) 6.2% municipal bond to a corporation in the 21% tax bracket

D) 6.2% municipal bond to a corporation in the 21% tax bracket

Under SEC regulations, publicly-traded (reporting) companies are required to file all of the following except A) Form 10-K. B) Form 10-Q. C) Form 8-K. D) Form 13F.

D) 13F

Bright-Lite Incandescent Bulb, Inc., has recently suffered significant operating losses and is planning a bankruptcy filing. Which of the following debt issues have the most junior claim? A) Mortgage bonds B) Senior notes C) Common stock D) Debentures

D) Debentures

Under the USA, when one is referring to a security that is guaranteed, the guarantee applies to I. capital gains to be expected by holding the specified security II. dividends to be paid on the specified stock III. interest and principal payment on the specified bond IV. reimbursement by the firm for any losses suffered while holding that security A) I and IV B) II and IV C) I and III D) II and III

D) II and III II. dividends to be paid on the specified stock III. interest and principal payment on the specified bond

According to the USA PATRIOT Act of 2001, account identification and verification procedures should be applied to which of the following? New individual accounts New business accounts Existing individual accounts Existing business accounts A) II and IV B) I and IV C) III and IV D) I and II

D) I and II The procedures required by the U.S.A PATRIOT Act for the verification and identification of customer accounts should be applied to all new customers-whether individuals or businesses.

NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to I. lend money to an investment adviser representative registered with the firm II. lend money to a bank that is a client of the advisory firm III. earn a fee that is based on a sliding scale depending on the amount of assets under management IV. borrow money from a mortgage broker who is an advisory client of the firm A) I and III B) II and III C) I and IV D) II and IV

D) II and IV II. lend money to a bank that is a client of the advisory firm IV. borrow money from a mortgage broker who is an advisory client of the firm

One of the ways that individuals can accumulate funds for retirement is through individual retirement arrangements (IRAs). There are a wide range of investments eligible for inclusion in an IRA and would include all of the following except A) fixed annuity contracts. B) specified collectibles. C) exchange-traded funds. D) life insurance contracts.

D) Life insurance contracts Life insurance policies are prohibited investments in an IRA and, in general, collectibles are prohibited as well. There are some important exceptions to the collectible prohibition. The IRS states that an IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

What generally happens to outstanding fixed-income securities when the rate of inflation slows? A) Yields go up. B) Coupon rates go up. C) Short-term securities are affected the most. D) Prices go up.

D) Prices go up

An investor has been comparing several different mutual funds with the same objectives. When making the decision as to which fund to purchase, which of the following factors would be the most important? A) The exchange on which the fund is listed B) The net asset value per share C) The date of the annual shareholders meeting D) The fund manager's tenure

D) The fund manager's tenure The fund manager's tenure (the number of years that manager has been managing that fund's portfolio) is important because, although past performance is no guarantee of the future, in general, investors prefer someone who has performed well over the years instead of a manager with only a year or two at the helm.

Calvin has the following securities in his portfolio: ABC common stock, XYZ common stock, PQR mutual fund (domestic small cap), DEZ mutual fund (foreign small cap), 30-year Treasury bond, and 5-year Treasury note. Which of the following risks should not concern Calvin? A) Reinvestment rate risk B) Systematic risk C) Default risk D) Business risk

Default risk

If a retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary, which of the following retirement plans offers this type of payment? A) Profit-sharing B) Money purchase pension C) Deferred compensation D) Defined benefit ​pension

Defined benefit ​pension

Which of the following most accurately identifies a private equity investment in income-producing real estate? A) Investment in a real estate mutual fund B) Private market mortgage lending by an insurance company C) Direct ownership of real estate properties D) Investment in a real estate investment trust (REIT)

Direct ownership of real estate properties

Which of the following investments is least appropriate for a client primarily concerned with liquidity?

Direct participation program

Which of the following statements is TRUE? A) A stock split increases the owner's proportionate share of the company. B) A corporation is required to pay a cash dividend to stockholders if the earnings are sufficient, especially if it is of preferred stock. C) A growth company would be more likely to pay a cash dividend than a stock dividend. D) Dividends have a significant influence on the value of the corporation's stock.

Dividends have a significant influence on the value of the corporation's stock.

Which of the following is a NOT a leading economic indicator? A) Money supply B) New housing permits C) Orders for durable goods D) Duration of unemployment

Duration of unemployment

Which of the following statements concerning equity securities is not correct? A) Equity securities provide a residual claim, after payment of all obligations to fixed-income claims, on the income and assets of a corporation. B) Preferred stock is an equity security with an intermediate claim (between the bondholders and the common stockholders) on a firm's assets and earnings. C) Common stock is an equity security representing an ownership interest in a corporation. D) Equity securities represent a lending interest in a corporation.

Equity securities represent a lending interest in a corporation.

Which of the following statements regarding a state-registered investment adviser with custody of customer assets is TRUE? A) Customer assets may be commingled with assets of the investment adviser. B) The Administrator must give written approval before the adviser may hold customer assets in custody. C) An adviser who has discretion over customer accounts faces a higher net worth requirement than an adviser who has custody. D) Every three months, the adviser must send an itemized account statement to each customer whose assets are held in custody.

Every three months, the adviser must send an itemized account statement to each customer whose assets are held in custody.

Which of the following is an example of a passive investment management style? A) Exclusive use of index funds B) Value investing C) Investment in small capitalization technology securities D) Use of index funds in conjunction with selecting specific securities in the index to overweight certain sectors

Exclusive use of index funds

In addition to the normal required filings, an investment adviser who maintains custody of client funds and/or securities will be required to complete

Form ADV-E

An investor interested in monthly interest income should invest in A) corporate bonds B) GNMAs C) utility company stock D) Treasury bonds

GNMAs GNMAs pay monthly interest and principal, treasury bonds pay semiannual interest, utility stocks pay quarterly dividends, and corporate bonds pay semiannual interest.

All of the following statements regarding Government National Mortgage Association (GNMA) pass-through securities are true EXCEPT A) the minimum initial investment is $25,000 B) GNMAs are considered to be the riskiest of the agency issues C) investors receive a monthly check representing both interest and a return of principal D) investors own an undivided interest in a pool of mortgages

GNMAs are considered to be the riskiest of the agency issues

Which of the following agency securities is guaranteed by the U.S. government? A) Federal Home Loan Bank B) Freddie Mac C) Ginnie Mae D) Fannie Mae

Ginnie Mae

From your meetings with Avery, you realize there is a tendency to follow the actions of a larger group of people when making financial decisions. It makes no difference if those actions are rational or not. Choose the behavioral finance theory that explains Avery's behavior. A) Herding B) Anchoring C) Confirmation bias D) Overconfidence

Herding

An investor originally purchased a debt security at par value. Unfortunately, the value has fallen to $920, even though the company has reported record earnings. This decline in value would be representative of what type of risk? A) Credit risk B) Timing risk C) Interest rate risk D) Purchasing power risk

Interest rate risk

Which of the following statements regarding preemptive rights is TRUE? A) Preferred stockholders do not have the right to subscribe to a rights offering. B) Common stockholders do not have the right to subscribe to a rights offering. C) Neither common nor preferred stockholders have the right to subscribe to a rights offering. D) Both common and preferred stockholders have the right to subscribe to a rights offering.

Preferred stockholders do not have the right to subscribe to a rights offering.

According to the Investment Advisers Act of 1940, which of the following statements about agency cross transactions is NOT true? A) Advisers must send statements to clients no less frequently than annually that identify the total number of these transactions during the period and the total amount of commissions received. B) These transactions are allowed if the adviser is acting in the best interest of the client with respect to obtaining the best possible price. C) Advisers must provide a written disclosure of potential conflict of interest before obtaining the client's written consent to execute such a transaction. D) Investment advisers can recommend these transactions to both the buyer and the seller if both clients give written consent.

Investment advisers can recommend these transactions to both the buyer and the seller if both clients give written consent.

A respected analyst reports that last week's T-bill rate at 6% is lower than the rate for the preceding week and lower than the average for the past month. Which of the following is TRUE? A) The yield curve is inverted. B) Investors are paying less for T-bills. C) Investors are paying more for T-bills. D) The general level of interest rates is increasing.

Investors are paying more for T-bills.

Which of the statements below best describes why a normal yield curve is positively sloped? A) Short-term bonds generally fluctuate in price more than long-term bonds. B) Stocks generally have lower yields than bonds, although their total returns may be higher. C) Investors logically demand higher returns from government securities than they do from corporate securities. D) Investors demand higher interest when lending their money for longer periods.

Investors demand higher interest when lending their money for longer periods.

A client has been contributing to a periodic payment annuity for 20 years. The M&E charge is 1.25% per year. What happens to that charge when the client annuitizes at attained age 68? A) It continues but at a reduced rate B) It continues C) It increases because the client's mortality risk is higher at the older age D) It ceases

It ceases

Which of the following statements regarding nonqualified annuities is CORRECT? A) It is possible to receive distributions from an annuity before age 59½ without incurring tax penalties. B) The exclusion ratio applies to accumulation units only. C) Because only insurance companies issue variable annuities, they are not considered securities. D) Because taxes on earnings are deferred, all money withdrawn will be subject to income tax when received.

It is possible to receive distributions from an annuity before age 59½ without incurring tax penalties.

The price of which of the following will fluctuate most with a change in interest rates? A) Short-term bonds B) Long-term bonds C) Common stock D) Money market instruments

Long-term bonds

Which of the following characteristics best exemplifies a value stock? A) Low earnings-per-share growth, high profitability B) Low price-to-book, low price-to-earnings ratio C) Low price-to-book, high price-to-earnings ratio D) High earnings-per-share growth, high profitability

Low price-to-book, low price-to-earnings ratio

Riley, as an investor, prefers to be on the lower end of the efficient frontier. We would expect to see which of the following risk and return combinations? A) High risk and low return B) Low risk and low return C) Low risk and medium return D) Low risk and high return

Low risk and low return

An investor is in a low tax bracket and wishes to invest a moderate sum in an investment that will provide some protection from inflation. Which of the following should you recommend? A) Money market mutual fund B) Ginnie Mae fund C) Municipal unit investment trust D) Mid-cap common stock mutual fund

Mid-cap common stock mutual fund

Mr. Hawkins sets up a revocable trust for the benefit of his adult daughter, Madeleine. His wife may draw from it only if she needs to. Income on the trust will be taxed to

Mr. Hawkins as the donor

Which of the following investments would be permitted in a client's IRA? A) Art B) Variable life insurance C) Municipal bonds D) Term life insurance

Municipal bonds

Which of the following is not an annuity purchase option?

Periodic payment immediate annuity

An investor holding which of the following equity securities would NOT expect to have preemptive rights? A) Common stock B) Common stock acquired in a private placement C) Preferred stock D) Control stock

Preferred stock Preferred stockholders do not have preemptive rights. Preemptive rights allow common stockholders to subscribe to additional issues of shares before they are offered to the public, to maintain their percentage ownership.

Which of the following statements about equity securities is NOT true? A) Common stock is less sensitive to interest rate risk than preferred stock. B) Preferred stock pays a fixed dividend. C) Preferred stock is usually nonvoting. D) Preferred stock is an equity security while common stock is a hybrid.

Preferred stock is an equity security while common stock is a hybrid.

Your customer owns $100 par 5½% callable convertible preferred stock convertible into 4 shares of common stock at $25. What should she be advised to do if the board of directors were to call all the preferred at 106 when the common stock is trading at $25.50? A) Convert her preferred stock into common stock because it is selling above parity. B) Hold the preferred stock to continue the 5½% yield. C) Present the preferred stock for the call because the call price is $4 above the parity price. D) Place irrevocable instructions to convert the preferred stock into common stock and sell short the common stock immediately.

Present the preferred stock for the call because the call price is $4 above the parity price.

If the required rate of return is higher than anticipated in a present value calculation, the effect would be that A) the yield to maturity would increase B) the present value would be higher C) the future value would be higher D) the present value would be lower

Present value would be higher

Which of the following is NOT a valuation method for a fixed-income security? A) Dividend discount model B) Price-to-earnings ratio C) Conversion parity D) Discounted cash flow

Price-to-earnings ratio

Which of the following risks would be associated with long-term, AAA-rated bonds? A) Ability of the issuing company to pay interest and principal B) Marketability C) Purchasing power risk D) Unstable interest payments

Purchasing power risk

A profitable company reports net income of $10 million. A cash dividend of $7 million is declared. From an accounting standpoint, the other $3 million will be credited to which balance sheet account?

Retained earnings

Construction of an investment policy statement (IPS) requires identifying the client's objectives and constraints. Which of the following would not be in the list of constraints? A) Risk tolerance B) Liquidity C) Time horizon D) Taxes

Risk tolerance When constructing an investment policy statement (IPS) risk tolerance is an objective, not a constraint. Time horizon, taxes, and liquidity are all constraints. An easy way to remember the five constraints is TTLLU (time horizon, taxes, liquidity, laws, unique).

Beta is most frequently measured against which of the following? A) S&P 100 B) Dow Jones Industrial Average C) S&P 500 D) Nasdaq Composite Index

S&P 500

Searching Out New Growth (SONG) is a venture capital fund. As such, all of the following statements are true EXCEPT A) SONG only issues securities which are, except in extraordinary circumstances, non-redeemable B) SONG must have less than $150 million in assets in the fund C) SONG is not registered under the Investment Company Act of 1940 D) SONG's investment adviser is exempt from registration

SONG must have less than $150 million in assets in the fund

Ian is a technical analyst who believes the market, as represented by the S&P 500 Index, is overbought. Over the next several months, there is a 12% correction. Which of the following strategies would have been successful for Ian?

Sell futures contracts on the S&P 500 Index

Under the Uniform Securities Act, which of the following is TRUE regarding the registration of securities? A) The Administrator may require that a prospectus be delivered to every purchaser of a registered security no sooner than the time at which the security is delivered. B) State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering. C) The effectiveness of a registration statement assures the accuracy of the information contained in the statement. D) Registration by coordination becomes effective on a date ordered by the Administrator.

State registration by coordination is available only if a federal registration statement has been filed under the Securities Act of 1933 in connection with the same offering.

Howard Robard is an investment adviser representative with Hughes & Company, a state-registered investment adviser having its principal office in State O and offices in States P and D. Howard works out of an office in State P and has 4 retail clients there. In addition, Howard has 25 retail clients in State D, 6 retail clients in State M, and 1 retail client in State O. Howard would be required to register as an investment adviser representative in

States P, D, and M.

Which of the following would NOT be considered a defensive security? A) Food chain stock B) Tobacco stock C) Steel company stock D) Utility company stock

Steel company stock

The statement, "Stock prices fully reflect all information from public and private sources," can be attributed to which form of the efficient market hypothesis (EMH)?

Strong form EMH

A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's A) previous high B) support level C) 200-day moving average D) resistance level

Support level

A customer invests $18,000 in a mutual fund and signs a letter of intent for $25,000 to qualify for a breakpoint. One year later, the shares are valued at $25,100, even though the customer has made no new investments. Which of the following statements is TRUE? A) The agent should remind the customer of the letter of intent that was signed 12 months ago. B) The investment no longer qualifies for a breakpoint. C) The letter of intent is considered fulfilled. D) Shares held in escrow will be liquidated at the appreciated value.

The agent should remind the customer of the letter of intent that was signed 12 months ago.

Which of the following statements regarding grantor trusts is NOT correct? A) The grantor may be taxed on trust income only if the grantor actually received the income. B) If the grantor can receive income from the trust, he is treated as the owner of the trust. C) If the grantor can control the beneficial enjoyment of the trust, he is treated as the owner of the trust. D) If the grantor has the power to revoke the trust, he is treated as the owner of the trust.

The grantor may be taxed on trust income only if the grantor actually received the income.

Allowable investments in an IRA would include A) U.S. government-issued silver eagles B) cash value life insurance C) rare stamps D) collectible art

U.S. government-issued silver eagles There are certain coins minted by the U.S. Treasury that are eligible for inclusion in an IRA. No life insurance is allowed (though annuities, both fixed and variable, are allowed), and collectibles, such as art and stamps, are prohibited.

The term derivative would apply to which of the following? A) UITs B) Warrants C) DPPs D) REITs

UITs

Which of the following would be a violation of the NASAA Contents of Investment Advisory Contract Model Rule?

Without the consent of advisory contract holders, the owner of a majority of the stock of the advisory firm pledges that stock to a bank as collateral for a loan enabling the firm to acquire better cybersecurity technology.

Which of the following strategies would be considered most risky in a bull market? A) Buying calls B) Buying a put C) Writing naked calls D) Writing naked puts

Writing naked calls Writing naked calls provides unlimited liability and the most risk. Buying a call would be an attractive strategy in a bull market with risk limited to calls paid. Writing naked puts risks only the difference between the strike price and zero, less any premium received. Buying a put is a bearish strategy with risk limited to the amount paid for the put.

An investor sells ten 5% bonds at a profit and buys another 10 bonds with a 5¼% coupon rate. The investor's yearly return will increase by A) $2.50 per bond B) $1.00 per bond C) $2.00 per bond D) $1.50 per bond

$2.50 per bond The first bonds are 5% and pay $50 per year per bond. The new bonds are 5¼% and pay $52.50 per year per bond. 5% coupon rate × $1,000 face value = $50 per year per bond; 5¼% coupon rate × $1,000 face value = $52.50 per year per bond.

An investment adviser representative has a client who prefers the safety of securities guaranteed by the U.S. Government, yet is concerned about volatility due to uncertainties in the future direction of interest rates. Which of the following recommendations would best address these concerns?

8% Treasury bond maturing in 2036

Which of the following is NOT true regarding the Securities Exchange Act of 1934? A) The act bars the use of arbitrage by broker-dealers. B) The act prohibits the simultaneous purchase and sale of a security to create the appearance of trading. C) The act proscribes the use of wash trades. D) The act prohibits the spread of false rumors to induce others to trade.

A) The act bars the use of arbitrage by broker-dealers.

Which of the following fee arrangements is legal under the Investment Advisers Act of 1940?

Adviser A charges an annual fee of 0.05% of the value of the client's account, due on the first day of the client's fiscal year.

Increases in which of the following indicators are regarded as predictors of the level of business activity?

Building permits

An investor purchases shares of ABC stock at $50 per share. One year later, ABC is selling for $54 per share and, at the end of the 2nd year, the price is $52 per share. ABC has paid dividends of $2 per year. Upon liquidation, the investor would have earned a return of A) $2 per share B) $4 per share C) $6 per share D) $8 per share

C) $6 per share The investor paid $50 and sold it for $52 for a $2 per share gain. During the 2-year holding period, $4 in dividends were paid. That is a total return of $6 per share.

What can you tell about these investment companies from the information below? NAV ASK Company A 12.34 12.85 Company B 15.45 14.90

Company A can be either open-end or closed-end; Company B must be closed-end.

One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing the following risks: I. Liquidity II. Creditworthiness of the buyer III. Lack of assurance that the delivery price will remain stable IV. The location for the delivery may change

I and II

Which of the following factors would be considered by an investor who uses fundamental analysis to value a company's stock? I. The company's financial condition, as revealed by its income statement and balance sheet II. General economic conditions, such as employment levels and changes in interest rates III. Charts showing past movements in stock prices and trading volumes

I and II

Which of the following would be a common use of a stop order? I. To protect the profit on a long position II. To prevent loss in a short position III. To buy at a specific price guaranteed by a specialist IV. To lock in a price with the specialist

I and II

Which of the following is TRUE of GNMA securities? I. Interest is subject to federal income tax. II. Interest is exempt from federal income tax. III. They are backed by farm mortgages. IV. They are backed by residential mortgages.

I and IV

One of the prohibited practices under the Uniform Securities Act is market manipulation. Which of the following are examples of a broker-dealer engaging in that practice? Arbitrage Churning Matched orders Wash trades

III and IV

A bond with a par value of $1,000 and a nominal yield of 6% paid semiannually is currently selling for $1,300. The bond matures in 25 years and is callable in 15 years at $1,080. In the computation of the bond's yield to call, which of these would be a factor? A) 50 payment periods B) Future value of $1,300 C) Present value of $1,080 D) Interest payments of $30

Interest payments of $30

Which type of risk is a mortgage-backed security most likely to experience?

Market risk

Which of the following risks would be associated with long-term, AAA-rated bonds? A) Ability of the issuing company to pay interest and principal B) Unstable interest payments C) Purchasing power risk D) Marketability

Purchasing power risk

George owns XYZ stock. Based on recent analyst projections and George's own research, he believes XYZ's price will remain flat over the next few months. Accordingly, which strategy would George most likely employ?

Sell a call option

Which of the following statements regarding investment risk is not correct?

Systematic risk may be reduced or eliminated by effective portfolio diversification.

Which type of individual account allows for investments held in that account to go straight to a named beneficiary outside of probate?

TOD account

Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?

Term

One of your clients buys 300 shares of RIF common stock in March at $25 per share. Three months later, the client purchases 200 shares of the RIF at $30 per share. One month later, RIF pays a dividend of $1 per share. Then, 5 months later, another purchase of the RIF is made—this time 400 shares at $35 per share. If the client were to sell all the RIF at $30 per share, what is the client's capital gain or loss?

The investor's total cost is $27,500 for the 900 shares purchased. The proceeds of the sale are $27,000 (900 × $30). That results in a capital loss of $500. The cash dividend has nothing to do with capital gain or loss.

Which of the following best describes a global mutual fund?

The portfolio consists of securities of companies domiciled throughout the world, including the United States.

A state-registered investment adviser suddenly incurs a liability that materially affects its net worth, causing it to drop below the required minimum. Which of the following statements is TRUE?

The​ ​investment adviser must notify the Administrator​ by the close of business on the following business day​.

An investor purchases a Treasury note and the confirmation shows a price of $102.21. Rounded to the nearest cent, the investor's cost, excluding commissions, is

Treasury notes are quoted in 32nds where each 32nd equals $.3125. The 102 in the quote equals $1,020 and the 21/32 is an additional $6.56 bringing the total to $1,026.56.

Which of the following is NOT considered a derivative? A) Futures contract B) Unit investment trust C) Call option D) Warrant

Unit investment trust All of the other choices "derive" their value from some underlying asset. A UIT is an investment company, and its value is based on its own assets.

One of the benefits of owning a home is the tax treatment of a sale of a primary residence. Under current IRS regulations,

a married couple is permitted to exclude the first $500,000 of gain.

A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of

an inverted yield curve

Nonsecurities derivatives include futures and forwards. Among the differences between futures and forwards is that futures contracts

are rarely exercised while forwards generally are.

When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted

as a contra party to the trade

A client of a broker-dealer calls his agent and submits an order to purchase 1,000 shares of a Chilean silver mining company. As the order ticket is being prepared, the agent notices that this is a nonexempt unregistered stock. The agent should

continue to process the order because this is an exempt transaction

Your client maintains a small cash account at the firm. One typical broker-dealer fee that would not be charged to this client is

margin interest on the debit balance

Under the Securities Exchange Act of 1934, the SEC may suspend all trading on an exchange

only with prior notification to the president of the United States

As compared to value investors, growth investors tend to

ook for companies whose sales, earnings, or market share are increasing at an above-average rate

A technical analyst (chartist) with a long position in a particular stock would most likely enter a sell stop order below that stock's A) 200-day moving average B) resistance level C) support level D) previous high

support level

Twenty-five individuals have formed an investment company. They have heard wonderful things about you as an investment adviser and ask if you would be interested in managing their portfolio. You reply that you would be interested but will only take the account if you can structure a compensation arrangement that calls for you to receive a base fee plus 18% of the profits to the extent that the account's performance exceeds a standard benchmark. Under the Uniform Securities Act, this type of agreement is allowable if

the investment company has net worth of at least in excess of $2.1 million or will place at least $1 million in assets under management with the IA

Doug runs a sole proprietorship IA and is also a registered agent with Pelf Securities, Inc., a registered broker-dealer. Doug charges his clients an hourly fee for advice, and when they wish to purchase recommended securities, they may do so through Pelf Securities if they have an account there. In those circumstances, Doug earns a commission on the securities transaction in addition to the hourly fee he earned while making that recommendation. Under the NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers,

this would be permitted if the compensation were disclosed to the client

Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited, among other assets, an IRA. After receiving a distribution of the account's assets, she dutifully rolled over 100% of the account value into a new rollover IRA. As a result, Mrs. Beech

will have to declare the entire IRA value as ordinary income

Your client purchased an index annuity from you last year with an investment of $100,000. The particular index tied to this product had an annual return of -4%. If the participation rate is 90% with a cap of 5% and no annual minimum guarantee, the value of the account would be A) $103,600. B) $96,400. C) $96,000. D) $100,000.

$100,000. (Please note that the return is negative (-4%). An index annuity does not participate in losses of the index, only gains. With no gain, and no guaranteed annual minimum, the account value remains at $100,000.)

An investor purchases two PMJ Dec 16 calls at $.85. If the commission charge is $8, the total cost is A) $178. B) $93. C) $328. D) $188.

$178.

A highly compensated customer owns 200 shares of Datawaq. He bought it 20 years ago, and it is now trading at 90. If he donates the stock to a 501(c)(3) charity, how much can he claim as a tax deduction for this donation? A) $6,000 B) $18,000 C) $12,000 D) $0

$18,000

A client approaches the IAR handling the advisory account with a request to find a preferred stock that will offer a 6% income return. The IAR suggests a stock paying a $.28 quarterly dividend. That stock will meet the income objective if it has a current market price of A) $18.67 B) $6.72 C) $11.91 D) $4.67

$18.67 The first thing to do is annualize the dividend by multiplying the $.28 by 4. Once we have the annual dividend of $1.12, divide by 6% and the result is $18.6666 or $18.67 properly rounded. If you left your math skills at home, all you have to do is multiply each of the 4 choices by 6% to see which one is closest to $1.12.

If a call option with an exercise price of $50 is purchased for $300, the maximum amount the investor can lose is

$300

Registration statements for securities under the Uniform Securities Act are effective for A) a period of time determined by the Administrator for each issue B) 1 year from the effective date C) 1 year from the previous December 31 D) 1 year from the date of issue

1 year from the effective date

Last year, ABC Corporation had earnings per share of $5 and paid a quarterly dividend of $.75 per share. It has a current market value of $75. What is its price-earnings ratio? A) 50:1 B) 10:1 C) 25:1 D) 15:1

15:1 The price-earnings ratio is the price of the stock ($75) divided by the earnings of the stock ($5), or 15:1.

A stock is currently worth $75. If the stock was purchased one year ago for $60, and the stock paid a $1.50 dividend over the course of the year, what is the holding period return? A) 24.0% B) 25.0% C) 22.0% D) 27.5%

27.5% *(75 − 60 + 1.50) ÷ 60 = 0.2750, or 27.5%.

Under the Insider Trading and Securities Fraud Enforcement Act of 1988, a person who has violated the prohibition against insider trading is liable for a civil penalty of A) 3 times the amount of the profit gained or loss avoided on the transaction B) 10 times the amount of the profit gained or loss avoided on the transaction C) twice the amount of the profit gained or loss avoided on the transaction D) the amount of the profit gained or loss avoided on the transaction

3 times the amount of the profit gained or loss avoided on the transaction

Which of the following bonds would appreciate the most if interest rates fell? A) 15-year maturity, selling at a premium B) 15-year maturity, selling at a discount C) 30-year maturity, selling at a discount D) 30-year maturity, selling at a premium

30-year maturity, selling at a discount

A 40-year-old schoolteacher would find her retirement needs best served by contributing to A) a Roth IRA B) a 401(k) C) 403(b) D) a traditional IRA

403(b) Employees of the public school system are eligible to participate in a 403(b) retirement plan. This plan offers the opportunity to contribute far more than could be contributed to an IRA.

As a rule, loans from a 401(k) plan must be repaid within how many years? A) 5 B) 10 C) 20 D) 15

5 Years

With the current rate of the 91-day Treasury bill at 2%, a stock paying dividends at a rate of 4% and having a total return over the measured period of 7% would have a risk premium of A) 4% B) 2% C) 9% D) 5%

5%

GHI currently has earnings of $4 and pays a $0.50 quarterly dividend. If GHI's market price is $40, the current yield is A) 10% B) 15% C) 5% D) 1.25%

5% The quarterly dividend is $.50, so the annual dividend is $2; $2 /· $40 market price = 5% current yield.

One of your clients enters a sell stop order at 60, limit 59. Subsequent to the entry of the order, trades occur at 61, 61.10, 60, 58.95, 59, 60. The client's order was most likely filled at A) 60 B) 59 C) 61.10 D) 58.95

59 This is really two orders. The first is to "stop" at 60. That is, once the stock trades at 60 or lower, enter the order. The second order is a sell, but with a limit of 59.

Richard purchased a 30-year bond for 103½ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Richard receives semiannual coupon payments and expects to hold the bond to maturity? A) 9.36% B) 8.50% C) 8.19% D) 8.68%

8.19% No calculation is necessary here. Why not? Because anytime a bond is purchased at a premium over par (103½% is a premium), the YTM must be less than the nominal (coupon) rate. There is only one choice lower than 8.5%. It isn't about your computational skills; it is about your understanding the relationship between prices and yields.

The following table shows the individual weightings and probable returns, [E(Rx)], for the three stocks in an investor's portfolio: Stock Weight E(Rx) V0.4012%M0.358%S0.255% What is the probable return of this portfolio? A) 8.33% B) 8.85% C) 9.05% D) 9.55%

8.85%

Use the following chart to answer this question Equity 100% 35% 20% 0% Fixed income 0% 65% 80% 100% High return 45.4% 34.2% 31.3% 28.7% Low return-7.4% 5.5% 8.2% 6.5% Avg. return 18.8% 19.2% 16.5% 14.2% Std. dev. 12.25 10.95 10.02 10.46 Which of these portfolio allocations would you expect to show the least volatility over the next year? A) 20%/80% B) 0%/100% C) 35%/65% D) 100%/0%

A) 20%/80% Explanation This imposing-looking question should take 10 seconds to do. When the question is dealing with volatility, look for the standard deviation. The portfolio with the lowest (the 20/80 at 10.02) is the least volatile, the one with the highest (100/0 at 12.25) is the most volatile.

One of your prospective clients is considered a key employee at his place of business. This individual has a net worth of almost $6 million, currently earns in excess of $500,000 per year, and is married with 2 teenage children. He currently has a little over $1 million in his 401(k), more than half of which is invested in his employer's common stock. The company is the beneficiary of a $1.5 million key person life insurance policy on his life. Given these facts, what is your greatest concern as his adviser? A) Inadequate life insurance coverage B) Alternative minimum tax C) Inadequate funding for college savings D) Too high a percentage of the retirement plan invested in the company's stock

A) Inadequate life insurance coverage

In the field of securities analysis, there are many tools available. Which of the following would most likelybe used by an analyst to approximate a reasonable price for a common stock? A) The dividend discount model B) Par value C) Yield to maturity D) Book value per share

A) The dividend discount model The simplest model for valuing equity is the dividend discount model—the value of a stock is the present value of expected dividends on it. Yield to maturity only applies to debt securities with a fixed maturity date. The par value of a common stock has nothing to do with its market price. Although fundamental analysts will examine a company's book value per share, it generally has little or no bearing on the current market price of the stock.

An agent made written disclosure to his employing broker-dealer that he intends to execute a series of private securities transactions with individuals who do not have accounts with his broker-dealer. The agent did not acquire express written permission from the broker-dealer and did not receive compensation for executing the transactions, but did receive written acknowledgment of receipt of the agent's notice. In this case, the agent A) is guilty of selling away. B) engaged in an agency cross transaction. C) is required to register as a broker-dealer. D) performed a matched order.

A) is guilty of selling away

Broker-dealers are required to furnish clients with a fee disclosure document. All of the following are true statements about that document except A) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. B) changes to the fee schedule must be announced in advance. C) it must be up-to-date. D) changes to the fee schedule may be shown on the firm's website.

A) it must be filed with the Administrator of the state in which the broker-dealer's principal office is located. There is no requirement that the fee schedule be filed with the Administrator. It must be up-to-date and any changes must be announced in advance (usually a minimum of 30 days). There are a number of ways to disclose the fees, the firm's website is one of them.

One of the exemptions from registration under state and federal law applies to investment advisers to private funds. One characteristic of all private funds is that A) they are not registered as investment companies B) they have assets of less than $150 million C) their advisers are exempt from filing reports on Form ADV D) they have no more than 100 investors

A) they are not registered as investment companies

A client, who is a famous tennis player, offers to record a testimonial for a covered investment adviser. The recording will be used in a television commercial. Under the SEC's Marketing Rule for Investment Advisers, the firm may A) use the testimonial provided disclosure is made that the athlete is a client and the extent of any compensation paid. B) have to file the testimonial with the SEC. C) go ahead with the recording but only if it is an endorsement rather than a testimonial. D) use the testimonial, provided the athlete receives no compensation.

A) use the testimonial provided disclosure is made that the athlete is a client and the extent of any compensation paid. Testimonials promoting investment advisers' services are permitted under the SEC rule. The rule distinguishes between a testimonial and an endorsement. The former is from a client and the later from someone who is not a client.When accepting a testimonial, the fact that the person is a client must be disclosed. Disclosure is also required if any compensation is being paid. Advertisements are not filed with the SEC.

An investment adviser representative is looking for a suitable investment for a client. The IAR wishes to find something that will offer an attractive return commensurate with its systematic risk. The choices have been narrowed to Security C and Security L, and the selection will be based on alpha. C has a beta of 1.0 and earned 13%, while L has a beta of 0.8 and earned 10.1%. The alpha of Security L is A) −0.3 B) +2.9 C) −2.9 D) +0.3

A) −0.3 Security L's Alpha: 10.1 - [.8 × (13)] 10.1 - 10.4 = -.3

A bond selling for $20 above par would be quoted A) 1,200.00 B) 102 C) 1,020.00 D) 120

B) 102 Bonds are quoted in percentages of $1,000 (par) (1% of $1,000 = $10). The proper quote would be 102; 102 is 102% of $1,000.

Which of the following actions by an investment adviser registered in 3 states is permitted? A) Stating in the advisory contract that fees will be reimbursed if account performance is less than agreed upon B) Announcing that the first 50 new clients to sign up will receive a 25% discount on their fees for the first year C) Delivering the brochure within 48 hours after signing of the contract, as long as there is a 5-day, penalty-free withdrawal provision D) Guaranteeing a rate of return equivalent to a 5-year insured bank CD or waiving their yearly fees

B) Announcing that the first 50 new clients to sign up will receive a 25% discount on their fees for the first year

James Stillman is an investment adviser representative with Rock, Feller, and Standard (RFS), a covered adviser with its principal office in State O. Stillman works out of an office in State P and has 4 retail clients there. In addition, Stillman has 25 retail clients in State D, 6 retail clients in State M, and 1 retail client in State O. Stillman would be required to register as an investment adviser representative in A) States P and O. B) State P. C) States D and M. D) States P, D, and M.

B) State P. As an IAR for a federal covered investment adviser, Stillman is required to register only in those states in which he (Stillman) has a place of business. Although Stillman has clients in several states, the question tells us that his place of business is the office in State P. Please note that, as long as an IAR with a covered adviser does not maintain a place of business in a state, there is no numerical limit on the number of clients he can have and still be exempt from registering in that state.

If an agent feels that his secretary is underpaid and decides to split his commissions on an 80%/20% basis, this practice is A) permitted if the secretary is also registered as an agent B) permitted if the secretary is also registered as an agent and the appropriate supervisory person agrees to the arrangement C) a violation in certain states D) a violation under all circumstances

B) permitted if the secretary is also registered as an agent and the appropriate supervisory person agrees to the arrangement

Which of the following statements is correct? A) Beta is a measure of relative unsystematic risk for stock or portfolio returns. B) Beta is a measure of relative systematic risk for stock or portfolio returns. C) Portfolio managers have a goal of reaching zero alpha. D) A stock or portfolio's beta increases as its alpha declines.

Beta is a measure of relative systematic risk for stock or portfolio returns.

One of the differences between broker-dealers and investment advisers is the disclosures that must be made when the IA is acting as a principal or agent in a transaction with an advisory client. In the case of a firm registered in both capacities, those disclosures would not be required when A) the transaction was in an exempt security B) approval was granted by an officer of the firm C) there was a transaction with a client of both entities, but the trade was not based upon advisory services rendered D) cleared with the Administrator

C) there was a transaction with a client of both entities, but the trade was not based upon advisory services rendered

Identify the accredited investors from the list below. I. An individual with a net worth of $800,000 and an annual salary of $150,000 II. A married couple with a net worth of $2 million consisting of net equity in their primary residence of $500,000 and pension plans and other assets worth $1.5 million III. An insurance company IV. A corporation with a net worth of $3 million A) III and IV B) I and II C) II and III D) I and IV

C) II and III II. A married couple with a net worth of $2 million consisting of net equity in their primary residence of $500,000 and pension plans and other assets worth $1.5 million III. An insurance company

Limited liability is a characteristic of being an owner of I. a general partnership II. an interest in a limited partnership III. shares of an S corporation IV. a sole proprietorship A) I and IV B) III only C) II and III D) I, II, and III

C) II and III II. an interest in a limited partnership III. shares of an S corporation

A broker-dealer with an office in this state would be defined as an investment adviser if it charges: I. commissions for selling securities II. commissions for selling securities while offering investment advice incidental to the sale of the securities III. a fee for selling investment research and additional fees in the form of commissions for the sale of securities IV. fees for investment research sold exclusively to institutions located in this state A) I and IV B) I and II C) III and IV D) II and III

C) III and IV It doesnt matter if its an institution, you cant sell investment research without being registered

Which of the following forms of the efficient market hypothesis claims that technical analysis works? A) Semi-strong B) Strong C) None of these D) Weak

C) None of these The efficient market hypothesis is in direct contradiction to technical analysis because the efficient market hypothesis is founded on the notion that all historical price and volume data, which is used by technical analysts, is already accounted for in the current stock price. The weak form claims that fundamental analysis works and the semi-strong form claims that inside information works. True believers in EMH claim that none of these can outperform random selection.

Selmer Jones has just inherited some money and wants to set some of it aside for a vacation in Hawaii one year from today. His bank will pay him 5% interest on any funds he deposits. In order to determine how much of the money must be set aside now and held for the trip, he should use the 5% as a A) required rate of return. B) nominal rate of return. C) discount rate. D) opportunity cost.

C) discount rate.

An inverted yield curve results in part by A) declining interest rates B) investors buying short-term bonds and selling long-term bonds C) investors buying long-term bonds and selling short-term bonds D) rising interest rates

C) investors buying long-term bonds and selling short-term bonds

An individual who has passed the NASAA examination for registration as an investment adviser representative may begin soliciting advisory clients A) when informed by the Administrator that the representative's registration is effective B) within 48 hours C) when informed by the investment adviser that the representative's registration is effective D) immediately

C) when informed by the investment adviser that the representative's registration is effective

Which of the following is not correct regarding the capital asset pricing model (CAPM)? A) The stock risk premium is the inducement necessary to entice the individual to invest in a particular stock. B) CAPM uses standard deviation as a measure of market risk. C) The market risk premium is the incentive required for the individual to invest in the securities market. D) CAPM only considers the systematic risk.

CAPM uses standard deviation as a measure of market risk.

Under current regulations, registration with the SEC is optional for all of the following investment advisers EXCEPT A) CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board B) Grand Visions Advisers, a sole proprietorship with $104 million in AUM C) Employee Benefit Specialists, Inc., a pension consultant with $225 million in AUM D) Midwestern Asset Managers, LLC, with $53 million in AUM, required to register in 17 states

CEF Investment Managers, LTD., a partnership managing a small registered closed-end investment company traded on the OTC Bulletin Board

Under the USA, which of the following fits the definition of a sale? A) Issuing a prospectus B) Solicitation of an offer to buy a security for value C) Attempt to dispose of a security for value D) Contract to dispose of a security

Contract to dispose of a security

While reviewing nationwide industrial production figures, an analyst notices that inventories have been rising. From that information, one would gather that the economy is most likely in which phase of the business cycle? A) Peak B) Recovery C) Expansion D) Contraction

Contraction

Which of the following is not an assumption of the capital asset pricing model (CAPM)? A) Corporate and government taxes affect all transactions. B) All investors want to achieve a maximum return for minimum risk. C) All market participants borrow and lend at the same risk-free rate. D) All market participants are well-diversified investors, and specific risk has been diversified away.

Corporate and government taxes affect all transactions.

Create A Large Legacy (CALL), Inc., is a state-registered investment adviser with offices in States X, Y, and Z. CALL currently does not have a place of business in State W, but does have 5 retail clients who are residents there. Opening an account for which of the following prospective clients domiciled in State W would now require CALL to register in State W? A) A small community bank depositing $500,000 B) A county in State W desiring advice on investment over $250,000 of surplus funds C) An insurance company account with an opening balance of $750,000 D) A trust having 4 minor children as beneficiaries with total trust assets of $5 million

D) A trust having 4 minor children as beneficiaries with total trust assets of $5 million

One of your clients has recently turned 72 and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from two previous employers. When computing the RMDs, I. the RMD from each IRA is computed and may be made from one or both of them. II. the RMD from each IRA is computed and must be paid from that IRA. III. both 401(k)s are combined to compute the required distribution which may be made from one or both of them. IV. the RMD from each 401(k) is computed and must be paid from that 401(k). A) I and III B) II and III C) II and IV D) I and IV

D) I and IV

An investor begins contributing $600 on the third day of each month to a purchase plan for the KAPCO Total Return Fund. For the first six months, the per share prices were: $10 $12 $15 $20 $12 $8 What is this investor's breakeven point?

D) $11.80 per share

A client is interested in investing in a mutual fund that will provide current income without the risk of large swings in the portfolio's value. The client is in a high-income tax bracket and has a moderate risk tolerance. Which of the following funds is most appropriate for this client? A) Money market fund B) High-yield bond fund C) Long-term municipal bond fund D) Intermediate-term municipal bond fund

D) Intermediate-term municipal bond fund When the question states a high-income tax bracket, the answer will almost always be municipal bonds. An intermediate-term municipal bond fund will experience less price fluctuations when interest rates change than would a long-term municipal bond fund due to its shorter duration. Even if the high-yield bond fund might produce a greater yield after taxes, it would not be suitable for an investor with a moderate risk tolerance. Money market funds will provide safety from large swings, but even if it is a municipal money market fund where the income would be tax-exempt, the current income would be too low to be attractive to this investor

All of the following must be disclosed by an investment adviser EXCEPT A) a senior officer of the firm was convicted of a felony 6 years ago B) the president of the investment adviser was found liable in a civil action involving unsuitable advice in a state where the adviser does not have an office C) a senior officer's suspension from the securities industry D) an investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations

D. an investment adviser representative in the firm was fined $1,000 by FINRA for making unsuitable recommendations Legal and disciplinary action successfully brought against an investment adviser must be disclosed to customers, as well as disciplinary actions that resulted in a fine in excess of $2,500. Convictions for a misdemeanor or felony involving securities or money within the past 10 years must also be disclosed.

Palpable Retirement Options (PRO) is a sole proprietorship investment adviser registered in States M and P. The owner of PRO is also a registered agent with Magnificent Financial Futures (MFF), a large broker-dealer registered with the SEC and many states. After a hearing conducted by the Administrator, PRO's owner has been found guilty of selling away to clients in state M. What effect might that have on MFF? A) Disciplinary action brought by the Administrator of State M if it is found that MFF failed to supervise its agent's activities B) None because PRO is a separate legal entity responsible for the activities of its CEO C) Disciplinary action brought by the Administrator of State P if it is found that MFF failed to supervise its agent's activities D) Disciplinary action brought by the SEC if it is found that MFF failed to supervise its agent's activities

Disciplinary action brought by the Administrator of State M if it is found that MFF failed to supervise its agent's activities

Which of the following statements is most accurate when describing equity straddle options? I. The option buyer is looking for market volatility. II. The option buyer is looking for market stability. III. The option seller is looking for market volatility. IV. The option seller is looking for market stability.

I & IV A straddle is the combination of a put and a call on the same stock with the same strike prices and expiration dates. The solution to the question is the same for any option position in that option buyers need price movement and option sellers make money from stability. In the case of a straddle, a buyer is expecting sharp movement but does not know the direction of the move. The seller of the straddle will benefit if there is no significant price movement.

To be in compliance with the Securities Act of 1933, the sale of which of the following securities would require delivery of a prospectus? I. Primary offering of a closed-end investment company registered under the Investment Company Act of 1940 II. Primary offering of 5-year U.S. Treasury notes sold to an individual investor III. Private placement sold under the provisions of Regulation D IV. Sale of shares of an open-end investment company whose first public offering was 23 years ago A) II and III B) I and II C) III and IV D) I and IV

I & IV. Any primary offering, unless the security is exempt, requires timely delivery of a prospectus. Treasury notes and private placements are exempt.

Which of the following are TRUE of a REIT? It can qualify for special tax treatment under Subchapter M of the Internal Revenue Code if it distributes at least 90% of its taxable income. It may loan money for commercial construction projects. It generates income by the spread between rental income, the combined mortgage interest, and operating expenses of the property. It is only suitable for an investor who is in a 28% or higher tax bracket, who has a net worth in excess of $200,000, or who is able to benefit from the flow-through of losses. A) I, II, and IV B) II and III C) I, II, and III D) I and III

I II and III

One of your advisory clients indicates that he would like to sell forward contracts in soybeans. It would be wise to warn the client that he will be facing the following risks: I. Liquidity II. Creditworthiness of the buyer III. Lack of assurance that the delivery price will remain stable IV. The location for the delivery may change I and II B) II and III C) III and IV D) I and IV

I and II

When must an investment adviser disclose personal securities transactions to a client? I. If the adviser makes trades in his own account that are inconsistent with advice given to a client II. If the adviser makes trades that are designed to take advantage of the impact caused by recommendations to clients III. Investment advisers must disclose all personal transactions to clients A) I only B) III only C) II only D) I and II

I and II

Kapco Investment Advisers currently has $18 million in assets under management and has offices in Colorado and Utah. Kapco's only clients in Utah are two insurance companies domiciled in that state. Kapco has no office in Washington but does service the accounts of three middle-class individuals. Kapco has recently opened an advisory account for a pension plan for a corporation located in Montana. Under the Uniform Securities Act, Kapco would have to register with the Administrator in the state of I. Colorado II. Montana III. Utah IV. Washington A) III and IV B) I and III C) I and IV D) I and II

I and III Colorado and Utah. bc it has under 100 mill in assets so not federal covered. so it must register in each state it has an office

A customer is interested in an exchange-traded fund (ETF). With regard to the trading of ETFs, the customer should be aware that I. ETFs can be purchased throughout the trading day II. ETFs use forward pricing, as all mutual funds do III. real-time quotes are available for ETFs IV. the NAV calculated at the end of the day, plus a sales charge, will equal the trading price A) I and IV B) I and III C) II and III D) II and IV

I and III ETFs can be purchased throughout the trading day real-time quotes are available for ETFs

Which of the following securities are the most interest rate sensitive? Utility stocks Growth stocks Preferred stocks Common stocks A) III and IV B) I and III C) II and IV D) I and II

I and III Utility stocks Preferred stocks

If a woman owns 9% of the common shares of XYZ, and her spouse owns 2% and wishes to sell his shares, he: is considered an affiliate. is not considered an affiliate. must file a Form 144 to sell. does not have to file a Form 144 to sell. A) I and III B) I and IV C) II and IV D) II and III

I and III is considered an affiliate. must file a Form 144 to sell.

The Administrator has authority to I. issue a cease and desist order without a hearing II. issue a cease and desist order only after a hearing III. summarily suspend a currently effective securities registration upon discovering an officer of the issuer has been convicted of a securities-related crime IV. sentence violators of the USA to 3 years in prison

I and III issue a cease and desist order without a hearing summarily suspend a currently effective securities registration upon discovering an officer of the issuer has been convicted of a securities-related crime

One of your clients has recently turned 72 and has questions about RMDs. The client has a traditional IRA, a rollover IRA, and 401(k) plans from two previous employers. When computing the RMDs, the RMD from each IRA is computed and may be made from one or both of them. the RMD from each IRA is computed and must be paid from that IRA. both 401(k)s are combined to compute the required distribution which may be made from one or both of them. the RMD from each 401(k) is computed and must be paid from that 401(k). A) I and III B) I and IV C) II and III D) II and IV

I and IV

Which of the following statements regarding hedging with options is CORRECT? I. A long stock position is hedged with a long put. II. A long stock position is hedged with a short put. III. A short stock position is hedged with a short call. IV. A short stock position is hedged with a long call. A) II and IV B) I and III C) II and III D) I and IV

I and IV A long stock position is hedged with a long put. A short stock position is hedged with a long call.

Which of the following statements regarding an S corporation owner and an owner of an LLC are TRUE? Creditors have very limited recourse rights to the owners. They may not be nonresident aliens. They both are considered stockholders. Both receive the tax benefit of owning flow-through entities. A) II and III B) I and IV C) II and IV D) I and III

I and IV Creditors have very limited recourse rights to the owners. Both receive the tax benefit of owning flow-through entities.

Which of the following statements regarding agent registration under the Uniform Securities Act are TRUE? I. In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day. II. The Administrator may initiate a disciplinary action within 2 years of an agent's withdrawal of registration. III. The administrator may request the agent furnish a statement of assets and liabilities. IV. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments. A) I and II B) I and IV C) II and III D) III and IV

I and IV I. In the absence of any action by the Administrator, the effective date of a registration is noon of the 30th day. IV. If, before the effective date of the registration, the Administrator requires amendments to the application, the registration will be considered to have first been filed upon filing of those amendments.

Which of the following statements is most accurate when describing equity straddle options? The option buyer is looking for market volatility. The option buyer is looking for market stability. The option seller is looking for market volatility. The option seller is looking for market stability. A) II and IV B) II and III C) I and IV D) I and III

I and IV The option buyer is looking for market volatility. The option seller is looking for market stability.

An efficient portfolio is one that offers I. the most return for a given amount of risk II. the least risk for a given amount of return III. the least return for a given amount of risk IV. the most risk for a given amount of return A) II or IV B) III or IV C) I or II D) I or III

I or II I. the most return for a given amount of risk II. the least risk for a given amount of return

Under the Uniform Securities Act, the Administrator may institute an action if an agent I. borrows money from his wealthy clients' accounts II. solicits orders for nonexempt unregistered securities III. buys and sells securities in accounts to generate a high level of commissions IV. alters market quotations to induce a client to invest in an attractive growth stock A) I and IV B) I, II, and III C) I, II, III, and IV D) I and III

I, II, III and IV

Which of the following statements regarding participant loans in a 401(k) plan are CORRECT? The maximum allowable loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. Unless the loan is taken out for the purpose of a mortgage on the participant's principal residence, repayment must be completed within 60 months of obtaining the loan. Payback of the loan will be through payroll deduction. Default on the loan will result in the IRS treating the loan as a distribution. A) I and II B) II and III C) I, II, III, and IV D) III and IV

I, II, III, and IV

Several entrepreneurs form an S corporation. Under which of the following circumstances will the entrepreneurs risk losing their tax benefits? 150 new investors buy into the corporation during the year. 1 new member is a nonresident alien. 50% of the corporation's income is derived from passive investments in limited partnerships. The corporation issues several classes of stock. A) I, II, and III B) I only C) I, II, III, and IV D) I and II

I, II, III, and IV S corporations must not have more than 100 stockholders and each stockholder must be a citizen or resident of the United States. The corporation can only have one class of stock, and no more than 25% of the corporation's income can come from passive activities. If you were not sure of this last fact, a useful test-taking technique is recognizing that all of the other choices are correct and there is no way to select them without this one.

The registration of an investment adviser would automatically register which of the following as investment adviser representatives? I. Directors II. Officers III. Partners

I, II, and III

Under SEC Release 1A-1092, which of the following has (have) met the test of providing advice or analysis concerning securities? I. A stockbroker calls a client and recommends the purchase of a certain stock. II. A lawyer recommends against purchasing shares of a mutual fund in favor of another investment. III. A publisher of an investment newsletter provides general information and recommendations concerning specific securities. A) I only B) I and III C) I and II D) I, II, and III

I, II, and III

Which of the following is (are) TRUE regarding qualified pension plans? I. They must not discriminate. II. They must have a vesting schedule. III. They must be in writing. IV. Every month the employer must update the current status of all accounts.

I, II, and III

When it comes to borrowing and lending money, the Uniform Securities Act (USA) prohibits activity that would compromise the objectivity of securities professionals. Which of the following is (are) NOT a prohibited practice(s)? I. A broker-dealer lending money to a client to purchase additional securities II. An agent taking out a car loan from a bank whose branch manager is a client of that agent III. An investment adviser borrowing money from an affiliated broker-dealer IV. An investment adviser lending money to a client to enable that client to maintain the minimum required asset level in the account A) I and III B) I, II, III, and IV C) I, II, and III D) II and IV

I, II, and III I. A broker-dealer lending money to a client to purchase additional securities II. An agent taking out a car loan from a bank whose branch manager is a client of that agent III. An investment adviser borrowing money from an affiliated broker-dealer Borrowing and lending is generally permitted when the lender is in the business of lending money and when the borrower borrows from someone in the business of lending money. Banks are the most common lenders, but broker-dealers are also in that business. When a client has a margin account, the broker-dealer is lending money to that customer to purchase additional securities. The fact that the bank branch manager is a client of the agent who is borrowing money does not change this situation as the loan is from the bank, not the manager. Loans are also permitted between affiliates.

Which of the following are prohibited practices? I. An investment advisory firm organized as a partnership failing to inform its clients of the departure of a partner with a very small interest in the partnership II. An investment advisory firm charging an annual fee equal to 2% of the first $250,000 in assets under management, 1% of the next $500,000, and 0.5% for everything in excess of $750,000 III. Without client consent, the majority stockholder of a registered investment adviser pledging his stock as collateral for a loan taken out by the firm to expand its services IV. Engaging in agency cross transactions

I. An investment advisory firm organized as a partnership failing to inform its clients of the departure of a partner with a very small interest in the partnership II. An investment advisory firm charging an annual fee equal to 2% of the first $250,000 in assets under management, 1% of the next $500,000, and 0.5% for everything in excess of $750,000

Which of the following statements regarding the brochure delivery requirements of the Investment Advisers Act of 1940 are TRUE? I. The brochure must be updated each time Part 1A of Form ADV is updated. II. The brochure delivery requirement does not apply to investment companies or clients who are serviced on an impersonal basis, such as with a newsletter, with an annual cost of less than $500. III. A brochure, or summary of material changes, if any, must be delivered to all clients within 120 days of the end of the adviser's fiscal year. A) I, II, and III B) II and III C) I and II D) I and III

II and III

An individual has filed an application for registration as an agent with a broker-dealer in this state. Which of the following would be ample cause for the Administrator to deny the registration? I. Bankruptcy filing by the individual 5 years and 4 months ago II. Conviction for a felony committed less than 10 years ago III. Conviction for a misdemeanor involving the securities industry less than 8 years ago IV. The applicant is not a legal resident of this state A) II and III B) II and IV C) I and IV D) I and II

II and III II. Conviction for a felony committed less than 10 years ago III. Conviction for a misdemeanor involving the securities industry less than 8 years ago

A client who purchased a variable life insurance policy 15 months ago has suffered a stroke. In addition, he has developed adult onset diabetes. When receiving treatment for the stroke, he was diagnosed with lung cancer. He has decided to convert his variable policy to a whole life policy. Which of the following statements is CORRECT? I. He will not be able to convert to a whole life insurance policy because his health has deteriorated to such a severe level. II. The new policy will bear the same issue date and age as the original policy. III. The face amount must remain the same. IV. The premium will be rated because his health has taken a marked turn for the worse. A) II, III, and IV B) I and IV C) I, II, III, and IV D) II and III

II and III II. The new policy will bear the same issue date and age as the original policy. III. The face amount must remain the same.

NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to I. lend money to an investment adviser representative registered with the firm II. lend money to a bank that is a client of the advisory firm III. earn a fee that is based on a sliding scale depending on the amount of assets under management IV. borrow money from a mortgage broker who is an advisory client of the firm A) II and III B) I and III C) I and IV D) II and IV

II and IV II. lend money to a bank that is a client of the advisory firm IV. borrow money from a mortgage broker who is an advisory client of the firm

The difference between a fixed annuity and a variable annuity is that the variable annuity offers a guaranteed return offers a payment that may vary in amount will always pay out more money than the fixed annuity attempts to offer protection to the annuitant from inflation A) II and III B) I and III C) II and IV D) I and IV

II and IV Variable annuities differ from fixed annuities because the payments vary and are designed to offer the annuitant protection against inflation.

Differences between static and interactive content on social media include only static content can be reused by others only static content needs pre-approval only static content can be changed by the person who originated it only interactive content can be commented on by others A) II and IV B) II and III C) I and III D) I and IV

II and IV only static content needs pre-approval only interactive content can be commented on by others

Discounted cash flow is commonly thought of as applying solely to fixed-income securities. However, forms of DCF used for the valuation of common stock also include the price-to-earnings ratio the dividend discount model the discounted book value model the dividend growth model A) II and IV B) I and IV C) II and III D) I and II

II and IV the dividend discount model the dividend growth model

Which of the following would be causes for concern about cybersecurity? A broker-dealer keeps all the firm's financial records in a ledger book A broker-dealer stores some of the firm's financial records electronically A broker-dealer's agents operate as independent contractors and maintain devices that access personally identifiable information about clients A broker-dealer's bookkeeper prefers to do the books from home on a personal computer A) II and IV B) II, III, and IV C) I and III D) I, II, III, and IV

II, III, and IV

An investment adviser representative is required to make disclosure to the client when I. the IAR, in preparing a recommendation, uses research provided by a third party with whom the IAR is not affiliated II. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale III. transactions recommended to a specific client are inconsistent with those for other clients with objectives that are identical to that particular client IV. transactions recommended to the client are inconsistent with those for the IAR's own account A) I, II, and III B) I and III C) II, III, and IV D) II and IV

II. the IAR recommends a specific insurance policy for the client's overall financial plan, where a commission will be received on that sale IV. transactions recommended to the client are inconsistent with those for the IAR's own account

A successful dollar cost averaging strategy requires I. stable market conditions II. volatile market conditions III. a fixed dollar amount invested monthly IV. a fixed number of shares purchased monthly A) I and III B) II and IV C) II and III D) I and IV

II. volatile market conditions III. a fixed dollar amount invested monthly

The Investment Advisers Act of 1940 contains the basic definition of persons who are investment advisers. Which of the following persons would be included in the listing of those who must register? I. A person who gives advice to investors on collectibles that are most likely to appreciate in value in the next 10 years II. A chemical engineer who gave advice on new product ideas that was solely incidental to the practice of the profession and for which no compensation was received III. A person, while receiving compensation, described the advantages of certain types of managed investments, such as mutual funds and REITs, but did not recommend a specific investment IV. A fee-based financial planner who, on the basis of current economic forecasts, had many of his clients liquidate their investment-grade bonds and purchase gold coins with the proceeds A) I and II B) III only C) I, II, and IV D) III and IV

III and IV III. A person, while receiving compensation, described the advantages of certain types of managed investments, such as mutual funds and REITs, but did not recommend a specific investment IV. A fee-based financial planner who, on the basis of current economic forecasts, had many of his clients liquidate their investment-grade bonds and purchase gold coins with the proceeds

The Investment Advisers Act of 1940 contains the basic definition of persons who are investment advisers. Which of the following persons would be included in the listing of those who must register? I. A person who gives advice to investors on collectibles that are most likely to appreciate in value in the next 10 years II. A chemical engineer who gave advice on new product ideas that was solely incidental to the practice of the profession and for which no compensation was received III. A person, while receiving compensation, described the advantages of certain types of managed investments, such as mutual funds and REITs, but did not recommend a specific investment IV. A fee-based financial planner who, on the basis of current economic forecasts, had many of his clients liquidate their investment-grade bonds and purchase gold coins with the proceeds A) I and II B) III only C) I, II, and IV D) III and IV

III only A person, while receiving compensation, described the advantages of certain types of managed investments, such as mutual funds and REITs, but did not recommend a specific investment

Under the Investment Advisers Act of 1940, as amended by the Market Rule for Investment Advisers, advertising done by investment advisers prohibits I. the use of testimonials II. reference only to specific past recommendations III. untrue statements A) I only B) I and III C) III only D) II and III

III only untrue statements

If an investor wants to invest in the electronics industry but does not want to limit his investments to only one or two companies, which type of fund would be most suitable? A) Money market B) Specialized C) Hedge D) Bond

Specialized

Under the UTMA, which of the following statements is NOT true? A) The maximum amount of money an adult can give to a minor in any one year is $15,000 B) An UTMA account may have only one custodian for only one minor. C) Only an adult can make a gift to a minor. D) Once a gift is given to a minor, it cannot be reclaimed.

The maximum amount of money an adult can give to a minor in any one year is $15,000

Which of the following statements regarding the Administrator's authority to examine the books and records of registrants is TRUE? A) Such examinations are not necessary or appropriate for the protection of investors or in the public interest. B) Broker-dealer records may be examined at any time during normal business hours, but the same is not so in the case of investment advisers. C) If a broker-dealer's or investment adviser's records are located outside the Administrator's state, they only may be examined to collect evidence for a hearing. D) The records may be examined at any time during normal business hours for any reason within or outside the state if it is in the public interest to do so.

The records may be examined at any time during normal business hours for any reason within or outside the state if it is in the public interest to do so.

Which of the following would be of least interest to a chartist? A) The advance/decline line B) The short interest C) The relationship between the current market price of an issuer's common stock and most recently reported earnings per share D) The volume of shares traded during the past month

The relationship between the current market price of an issuer's common stock and most recently reported earnings per share

Which of the following is not included in fundamental analysis of a company? A) The study of a firm's financial statements. B) The study of the direction of the economy. C) The study of a firm's position within its industry. D) The study of a company's historical stock prices and trading volume.

The study of a company's historical stock prices and trading volume.

Saving for higher education using which of the following tools will generally result in the worst outcome when filing the FAFSA form?

UTMA

Which of the following investment vehicles provides for redemption by the issuer?

Unit investment trust (UIT)

The Federal Reserve Board has just taken action leading to an increase in interest rates. Which of the following industries is most likely to be affected adversely by this action? A) Heavy industries such as steel B) Utilities C) Cyclical industries D) Defensive industries

Utilities

Janice is investing in stocks that are temporarily neglected by the market and often have high-dividend yields. Which of the following investment styles might she be following? A) Contrarian B) Growth C) Momentum D) Value

Value

A risk faced by many seniors is longevity risk. What security would be most appropriate to protect against that risk? A) Fixed annuity B) REIT C) Common stock D) Variable annuity

Variable annuity Longevity risk is the uncertainty that one will outlive his money. The only instrument that guarantees a payout for as long as one lives is an annuity. Because the question asks for a security, only the variable annuity is correct, otherwise the fixed annuity would also offer protection.

Broker-dealer A wants to promote and reward teamwork. The firm plans to pay out a small percentage of the firm's profits to the clerical staff as a bonus for their hard work. Under NASAA rules, is this permitted? A) No, this cannot be done. B) Yes, no registration is necessary. C) Yes, if all of the agents agree to it. D) Yes, if the entire clerical staff is registered as agents for the firm.

Yes, no registration is necessary. Bonuses based on a broker-dealer's profits may be payable to nonregistered clerical help as long as there is no direct relationship to any specific sales.

A frequent concern of parents initiating a savings plan for the college education of their child is the lack of control over the assets, particularly if the child decides to forego higher education. When you have a client who shares this concern with you, it would be most appropriate to suggest A) a Section 529 plan. B) opening a new account in the client's name for this purpose. C) an UTMA account. D) U.S. Treasury zero-coupon bonds.

a Section 529 plan.

An investment company that invests in common stock, preferred stock, and bonds would most likely be classified as A) a growth fund B) a sector fund C) a balanced fund D) an income fund

a balanced fund

It is often said that the backbone of the over-the-counter market is the market maker. A good description of a market maker would be A) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded on a listed exchange B) an investment banker who participates in a firm underwriting C) a member of FINRA D) a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market

a broker-dealer who stands ready to buy or sell at least the standard unit of a specific stock traded in the over-the-counter market

An investment adviser sends a notice offering a research report she has recently prepared to a group of 25 new members of the local Lions Club. Under the NASAA Model Rule on recordkeeping for investment advisers, the firm must keep a copy of the notice along with A) a copy of the full roster of the local chapter B) a memorandum describing the list and its source C) the names of those members to whom the report was sent D) the date the Administrator approved the research report

a memorandum describing the list and its source

All of the following statements regarding registration of broker-dealers under the Uniform Securities Act are true EXCEPT A) broker-dealers with discretion over client accounts may be required to post a surety bond B) a successor firm is exempt from paying registration fees until the renewal date C) a successor firm is exempt from filing a consent to service of process until the renewal date D) no broker-dealer can be required to meet financial requirements in excess of those of the SEC

a successor firm is exempt from filing a consent to service of process until the renewal date. When one firm succeeds another, no fees are due until renewal date. However, the successor firm must file a consent to service of process at the time it registers.

A U.S. citizen owns stock in a Canadian company and receives dividends. The Canadian government withholds 15% of the dividends as a tax. As a result, the investor reports A) a tax credit on the investor's Canadian tax return B) a reduction in the investor's ordinary income C) a tax credit on the investor's U.S. tax return D) a nonrecoverable loss on the investor's U.S. tax return

a tax credit on the investor's U.S. tax return An investor receives a credit for taxes withheld on investments by countries with which the United States has diplomatic relations; the tax credit directly decreases the investor's American tax liability.

An investment adviser representative is preparing a financial plan for a new client. As part of the data collection process, the IAR needs to collect the relevant information to analyze the client's cash flow. Included in the cash flow statement would be all of the following EXCEPT A) income taxes B) salary C) interest on savings D) assets

assets

Under industry rules, customers who wish to trade options must receive a copy of the options disclosure document (ODD) A) within 15 days of account approval B) at or before account approval C) at or before the mailing of the confirmation representing the first options trade D) at or before the mailing of the next monthly statement

at or before account approval

A company's working capital equals its A) current liabilities minus its current assets B) current assets minus its current liabilities C) fixed assets minus its fixed liabilities D) cash flow minus its retained earnings

current liabilities minus its current assets

A variable annuity has A) a high degree of liquidity B) different investment options known as subaccounts C) a guaranteed rate of return D) fixed payments once it has been annuitized

different investment options known as subaccounts Variable annuities pay variable payments once annuitized, do not guarantee a rate of return, and are not considered liquid investments; they do offer multiple investment options through the subaccounts

A federal covered investment adviser has decided that it is necessary to increase its fee schedule and charge commissions on securities trades. However, they are going to leave the fee structure in place for existing customers. This information must be A) disclosed promptly to all customers by amending the brochure B) disclosed promptly to the Administrator of the state where the IA maintains its principal office C) disclosed in the summary of material changes in the annual updating amendment to the SEC D) disclosed promptly only to those customers who will be affected by the change through an amended brochure

disclosed promptly only to those customers who will be affected by the change through an amended brochure

In designing a client's portfolio, a registered investment adviser representative of Greater Wealth Advisory Services recommends the purchase of several stocks from the inventory of Greater Wealth's wholly owned broker-dealer. Under the Investment Advisers Act of 1940, this activity requires written A) consent of and the disclosure to the client prior to execution of the transaction B) consent of the client C) disclosure to the client and consent prior to completion of the transaction D) disclosure to the client

disclosure to the client and consent prior to completion of the transaction

All of the following activities could result in the revocation of an agent's registration EXCEPT A) making recommendations based on material nonpublic inside information B) excessively trading for the purpose of generating commissions C) borrowing from retail customers D) failing to state all known facts about an investment when presenting it to a client

failing to state all known facts about an investment when presenting it to a client Failure to state all known facts about an investment is not a violation of the Uniform Securities Act; omitting material facts, however, would be a violation of the act. Excessive trading, making recommendations on material nonpublic information, and borrowing from retail customers are prohibited business practices that could result in revocation of a registration.

Section 404(c) of ERISA deals with A) fiduciary responsibilities B) tax qualification of the plan C) distribution options D) eligibility requirements

fiduciary responsibilities The requirement for a retirement plan trustee to follow fiduciary standards is found in Section 404 (c) of ERISA.

Under the Uniform Securities Act, all of the following are exempt from state registration as investment advisers EXCEPT A) financial planners who provide fee-based investment advisory services to clients B) investment adviser representatives C) publishers of financial publications that are not addressed to clients' specific individual investment situations D) investment advisers with no office in the state who only advise employee benefit plans with assets of more than $1 million

financial planners who provide fee-based investment advisory services to clients

By investing in a REIT, you are provided all of the following except A) flow-through tax treatment of income. B) ownership of real property without management responsibilities. C) flow-through tax treatment of operating losses. D) diversification of real estate investment capital.

flow-through tax treatment of operating losses.

One of the primary benefits of dark pools of liquidity is A) insiders are able to trade without being recognized. B) trading is not limited to daylight hours, a major advantage for international investors. C) market transparency is reduced. D) institutional traders are able to execute large block trades without impact to public quotes or prices.

institutional traders are able to execute large block trades without impact to public quotes or prices.

All of the following appear on a corporation's balance sheet as fixed assets EXCEPT

inventory

Under Section 401 of the Uniform Securities act, the term agent does not include an individual who represents an issuer in effecting transactions in a security A) issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this state B) issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, or any building and loan or similar association organized under the laws of any state and authorized to do business in this state C) issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association D) issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state

issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state

You have a 45-year-old client wishing to save for retirement. The client does not have a great deal of investment sophistication and inquires about the risks you have exposed him to by placing the majority of his portfolio in listed common stocks. You would respond that one risk he should not concern himself with is: A) business risk B) inflation risk C) liquidity risk D) systematic risk

liquidity risk A portfolio of listed common stocks will have little to no liquidity risk because listed shares are easily traded. Even though common stock tends to offer protection against inflation, there is no assurance that the portfolio will keep pace with the rising cost of living.

An analyst uses the dividend growth model to assist in determining appropriate stocks to recommend. This analyst would consider all of the following factors EXCEPT A) required rate of return B) market capitalization C) growth of the dividend D) current dividend

market capitalization The classic definition of the dividend growth model is "a stock valuation model that deals with dividends and their growth, discounted to today." The market capitalization is the number of outstanding shares multiplied by the current market price per share and has nothing to do with the company's dividend policies.

A working group convened by NASAA has developed a model fee disclosure schedule to help investors better understand the costs involved in doing business with their broker-dealer. The template has broker-dealers disclose all of the following fees EXCEPT A) markups and markdowns on trades done as a principal B) the cost of overnight delivery services C) safekeeping of customer funds and securities D) interest on debit balances in margin accounts

markups and markdowns on trades done as a principal

A 68-year-old individual, who purchased a single premium immediate fixed annuity, elected monthly payments for life with a 10-year certain settlement option. If the individual lives to the age of 80, A) monthly payments will continue to the beneficiary(s) for 10 years after the annuitant's death. B) monthly payments will cease at age 78. C) monthly payments will continue until death. D) monthly payments will remain fixed until age 78 and then reduce until death.

monthly payments will continue until death.

Amie Lear is a securities analyst employed by Empyreal Benefits, Inc., a registered broker-dealer. She is assigned to cover a number of different equity and debt investments. One of the investments is Taylor, Inc. (Taylor), a manufacturer of a wide range of children's toys. Based on her extensive analysis, she determines that her expected return on the stock, given Taylor's risks, is 10%. However, when applying the capital asset pricing model (CAPM), the result is a 12% rate of return. Based on Lear's analysis, Taylor's stock is A) correctly valued. B) overvalued. C) undervalued. D) neither overvalued nor undervalued.

overvalued. The CAPM gives us the expected rate of return on an investment. It is sometimes referred to as the required rate of return. That is, based on the risks, the CAPM reveals the return that should be earned. In this example, that return is 12%.Lear's computation expects the return to be only 10%. Therefore, Lear is showing that instead of providing the required return of 12%, she believes the stock will only return 10%. That makes the stock overpriced (a lower price will generate a higher rate of return). As a result, Lear would not recommend this stock because her calculations indicate it will not return as much as it should for the risk being taken.

Covered call writing is a strategy where an investor A) buys two calls on the same security he owns to leverage the position B) buys a call on a security he has sold short C) sells a call on an index that contains some of the securities that he has in his portfolio D) sells a call on a security he owns to reduce the volatility of the stock's returns and to generate income with the premium

sells a call on a security he owns to reduce the volatility of the stock's returns and to generate income with the premium

Mary is a bowling buddy of Susan, a covered investment adviser. Mary refers Amanda, a wealthy widow, to Susan, and after a very pleasant meeting, Amanda places $15 million under management with Susan. If Susan were to give Mary a cash payment for the referral, A) only Susan would have to make disclosure to Amanda B) she would have to obtain Mary's permission first C) both Susan and Mary would have to disclose the cash payment to Amanda D) she would be engaging in an prohibited practice

she would be engaging in an prohibited practice Although there are circumstances under which cash payments may be made to solicitors, none of the required conditions found in the Investment Advisers Act of 1940 appear to be met here. A formal written agreement must be in effect, not just a one-time reward.

Each of the following statements regarding registration of securities by coordination is true EXCEPT A) the registration statement must contain or be accompanied by consent to service of process B) state registration must be effective prior to federal registration C) the Administrator may reduce the required time that the registration statement must be on file prior to becoming effective D) the registration becomes effective at the state level concurrent with SEC registration if the Administrator has not entered an order to deny it

state registration must be effective prior to federal registration State registration must be coordinated with federal registration. In most cases, the registration statement must be on file with the Administrator for ten days, but the Administrator has the power to shorten that period. The registration statement becomes effective concurrent with the SEC and must contain or be accompanied by consent to service of process.

The federal legislation that requires broker-dealers to verify the identity of any person opening an account is A) the Securities Exchange Act of 1934 B) the Insider Trading and Securities Fraud Enforcement Act of 1988 C) the USA PATRIOT Act of 2001 D) the Uniform Securities Act of 1956

the USA PATRIOT Act of 2001 The U.S.A. PATRIOT Act requires firms to obtain identifying information on each new customer, verify the identity of each new customer, maintain records relating to identity verification, and to determine if any new customer appears on a list of known or suspected terrorist groups compiled by the Office of Foreign Asset Control (OFAC).

Your client wants to have $1 million in her investment account when she retires at age 70. She is currently 50 and has about $215,000 available to invest today. You tell her that if the portfolio can earn at a compounded rate of 8%, she will reach her goal. That 8% rate is A) the internal rate of return B) the future value rate C) the market rate of return D) the present value rate

the internal rate of return

When comparing cash and margin accounts, it is important to note that A) the investor will generally make more money by using margin. B) the interest charged on debit balances in cash accounts reduces the investor's returns. C) IPOs must be purchased in margin accounts because of their higher risk. D) the investor can lose more than his original capital in a margin account.

the investor can lose more than his original capital in a margin account.

When comparing cash and margin accounts, it is important to note that A) the investor will generally make more money by using margin. B) the interest charged on debit balances in cash accounts reduces the investor's returns. C) the investor can lose more than his original capital in a margin account. D) IPOs must be purchased in margin accounts because of their higher risk.

the investor can lose more than his original capital in a margin account.

A client of an investment adviser needs a bridge loan and approaches the IA to see if the firm is interested. Because the IA is not in the business of lending money, a special agreement is drawn up specifying the terms of the loan. Under NASAA's Model Rule dealing with Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers

the loan could only be made after the advisory contract was terminated

Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) ISOs may only be granted to employees while NSOs may be given to virtually anyone. B) the holder of an ISO can recognize capital gain (loss) as a result of exercise, whereas ordinary income (loss) is the result with an NSO. C) the recipient of the grant of the ISO has no income tax consequences at the time of the grant. D) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO.

the recipient of the grant of the ISO has no income tax consequences at the time of the grant.

Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) the recipient of the grant of the ISO has no income tax consequences at the time of the grant. B) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO. C) ISOs may only be granted to employees while NSOs may be given to virtually anyone. D) the holder of an ISO can recognize capital gain (loss) as a result of exercise, whereas ordinary income (loss) is the result with an NSO.

the recipient of the grant of the ISO has no income tax consequences at the time of the grant.

One of the rights of being a stockholder is the ability to vote on important corporate matters, such as the election of members to the board of directors. The date that determines which shareholders are eligible to votes is A) the election date. B) the ex-dividend date. C) the record date. D) the last day of the company's fiscal year.

the record date. The record date is a date announced by the company as the official date you must be an owner on the company's records in order to participate in the annual meeting and corporate election.

A Canadian broker-dealer is registered in Province Q. The firm has clients who vacation in several New England states and they would like to continue to do business with them while on their holidays. Under the Uniform Securities Act, A) this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing B) this is permissible only if the broker-dealer is registered with the SEC C) this would only be permitted if the trades were executed through an affiliated domestic broker-dealer who is licensed in those states D) the broker-dealer may only accept unsolicited orders from their existing clients while they are vacationing in the United States

this is permissible if the broker-dealer is properly registered in Province Q, deals only with existing clients, and registers in each of the states where their clients are vacationing

The institutional trading desk of a major broker-dealer receives a substantial purchase order for XYZ common stock from one of its clients. While completing the paperwork to begin the order sequence, the firm decides to purchase shares of XYZ for its proprietary account. Under the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, A) the purchase could only be made with prior disclosure to the client B) the broker-dealer has the right to purchase shares of XYZ whenever it wishes. C) this would be the prohibited practice of front running D) this would be considered market manipulation

this would be the prohibited practice of front running

All of the following factors have an inverse relationship to a bond's duration except A) coupon rate. B) yield to maturity. C) current yield. D) time to maturity.

time to maturity.

Under the Uniform Securities Act, a state-registered investment adviser whose only office was in State N would NOT have to register in State O if its only clients were A) individual accredited investors B) 6 or fewer retail clients C) trust companies D) complex trusts

trust companies A state-registered investment adviser can make use of the de minimis exemption if it has no place of business in a state and its only clients are institutions, such as bank and trust companies, investment companies, and insurance companies. Don't confuse a trust with a trust company—trusts are not institutions unless it specifically states a pension or profit-sharing trust, and even then, it only qualifies if it has assets of not less than $1 million. No individual, regardless of wealth, is an institution and the de minimis limit is fewer than 6 (sometimes shown as 5 or fewer).

A fundamental analyst researching a stock is concerned with all of the following EXCEPT A) volume of shares traded B) the stock's market price as a multiple of the company's earnings C) capitalization ratio D) management efficiency

volume of shares traded A fundamental analyst is concerned with the economic climate, the inflation rate, how an industry is performing, a company's historical earnings trends, how it is capitalized, and its product lines, management, and financial statement ratios, such as the P/E ratio. A technical analyst is concerned with trading volumes or market trends and prices.

If an investor is looking for an open-end investment company with an objective of providing current income to its shareholders, she would most likely choose A) a venture capital fund B) a hedge fund C) a growth fund D) an income fund

an income fund

Which of the following investments would NOT be considered an exchange-traded derivative?

Forwards

Which of the following are regulated under the Securities Exchange Act of 1934? I. New issues II. Broker-dealers III. Transfer agents

II and III

Inverse ETFs are suitable primarily for investors

with a very short time horizon.

Assume Frank has a portfolio with an actual return of 10.50% for the past year. The portfolio beta equals 1.25, the return on the market equals 9.75%, and the risk-free rate of return equals 3%. Based on this information, what is the alpha for Frank's portfolio and did it out outperform or underperform the market? A) −0.9375%, underperform B) +3.3750%, outperform C) +9.1875%, outperform D) −1.6875%, underperform

−0.9375%, underperform The formula for alpha: alpha = (actual return − risk-free rate) - (beta × [market return − RF])]

Which of the following vehicles make use of the unified estate tax credit? Bypass trust Generation-skipping trust Living trust Simple trust A) II and III B) I and IV C) I and II D) III and IV

I and II Bypass trust Generation-skipping trust

Your client with $100,000 to invest is looking for maximum current income. Which of the following would offer the highest current return? A) $100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity B) $100,000 AA-rated corporate bonds trading at par with a 6% coupon rate C) $200,000 of utility common stock paying a current dividend of 3.5% D) $100,000 of zero-coupon bonds with a yield to maturity of 6%

$100,000 market value of corporate bonds selling at a premium and yielding 6% to maturity Bonds selling at a premium have higher coupons than those selling at par. Therefore, the current yield on those bonds is higher than the ones at par, even though they would have the same yield to maturity. The zero-coupon bonds offer no current income and the investor only has $100,000 to invest, so the utility stock is not a viable option.

William died in 2019 with the following assets and liabilities: $200,000 in securities left to his wife, $650,000 home left to his wife (the home cost $150,000), $250,000 life insurance policy with his daughter named as beneficiary, and $75,000 in debts and estate expenses. What is William's net estate? A) $625,000 B) $750,000 C) $175,000 D) $0; it is below the $11.4 million exemption equivalent

$175,000 The question is asking for the net estate, not the amount of estate tax due. The market value of all assets that William has an incident of ownership in will be included in the gross estate. All assets left to the spouse and the debts/expenses are allowable reductions to arrive at the net or taxable estate. The math goes like this. The $1.1 million gross estate (add together the assets ($200,000 + $650,000 + $250,000) is reduced by the $850,000 left to his wife. That brings the net estate down to $250,000 ($1,100,000 minus $850,000). The net estate is further reduced by the $75,000 in debt and expenses. Subtracting $75,000 from $250,000 leaves a net estate of $175,000. That is well below the estate tax exemption of $11.4 million in assets for 2019.

An investor sells ten 5% bonds at a profit and buys another 10 bonds with a 5¼% coupon rate. The investor's yearly return will increase by A) $2.50 per bond B) $1.50 per bond C) $2.00 per bond D) $1.00 per bond

$2.50 per bond C. ExplanationThe first bonds are 5% and pay $50 per year per bond. The new bonds are 5-1/4% and pay $52.50 per year per bond, for a difference of $2.50 per bond.

A married couple has lived in the same home for 40 years and now, with the children all gone, they've decided to sell and move to a retirement village. They purchased the home for $80,000 and have accepted a contract for $800,000. The tax consequences of this sale is A) $0 capital gain. B) $220,000 capital gain. C) $720,000 capital gain. D) $470,000 capital gain.

$220,000 capital gain. As long as a homeowner has lived in the primary residence at least 2 of the previous 5 years, the first $250,000 of profit on a home sale is excluded from tax. In the event it is a married couple, as in this question, the exclusion is doubled to $500,000. The profit on the sale was $720,000 ($800,000 minus the cost of $80,000) and the exclusion of $500,000 reduces the reportable gain to $220,000.

A 3X leveraged fund priced at $42 tracks an index that is up 2% one day and then down 3% on the next day. What should this fund be approximately priced at following these 2 volatile days? A) $40.50 B) $41.55 C) $43.18 D) $45.86

$40.50 Starting with the $42 purchase price, a 2% increase to the index on day 1 equals $0.84 up (0.02 × $42 = $0.84). Given the 3X leverage, this would equate to a $2.52 increase on day one (3 × $0.84 = $2.52). At the start of day 2, the fund would be priced at $44.52 ($42 + $2.52 = $44.52). On day 2, the index falls by 3%. A 3% decrease in the fund equals $1.34 [0.03 × $44.52 ($1.3356 rounds up to 1.34)]. Again due to the 3X leverage structure of the fund, the $1.34 decrease equates to a $4.02 drop in the fund price (3 × $1.34 = $4.02). Therefore, after the 2 volatile days, the fund should be priced at approximately $40.50.

Sally Sherman purchased 100 shares of Chocolate Manufacturers Corporation for $19 per share on February 12. She received a 10% stock dividend on May 18. She sold all of her CMC at $13 per share in June of the same year. What were her tax results? A) $470 short-term loss B) $575 long-term loss C) $575 short-term loss; $105 long-term gain D) $575 long-term gain, $105 short-term loss

$470 short-term loss Sally paid $1,900 for 100 shares and sold 110 shares for $1,430 (13 at 110). Because the transactions all took place in less than a year, the transaction was a short-term loss.

There are various ways in which an investment adviser may be compensated for services rendered. All of the following would be permitted under the Uniform Securities Act EXCEPT A) hourly fees B) 1% of the increase in account value over the next quarter C) 0.25% of the asset per quarter D) 1% of the average annual assets

1% of the increase in account value over the next quarter

STOCK50%30%10%0%BONDS50%70%90%100%High return39.4%37.2%34.3%32.7%Low return1.4%6.5%7.2%8.5%Ave. return15.8%16.2%15.5%15.2%Std. Dev.11.2510.7510.1510.34 Which portfolio mix would you recommend to a client who is most concerned about projected near-term volatility? A) 100%/0% B) 10%/90% C) 50%/50% D) 30%/70%

10%/90%

Twelve years ago, an investor placed $2,500 into an account. The account is now worth $10,000. Using the Rule of 72, you can determine that the approximate annual return was A) 36%. B) 6%. C) 400%. D) 12%.

12%.

If the current risk-free rate is 5%, and the expected return on the market is 10%, what return can be expected from a security that has a beta of 1.5? A) 20% B) 15% C) 12.5% D) 15.5%

12.5% 5% + (10% - 5%) × 1.5 = 5% + (5% x 1.5) = 5% + 7.5% = 12.5%.

The capital asset pricing model (CAPM) is used by many to assess the expected return of a security. If the current risk-free rate is 2%, the current return on the market is 10%, and a particular stock's beta is 1.5 with a standard deviation of 3.2, the expected return would be A) 18.2% B) 15% C) 14% D) 12%

14% The formula for this computation is as follows: 10% (the return on the market is a beta of 1.0) minus the risk-free rate of 2% or 8%. Then, multiply that by the beta of this stock (1.5) to arrive at 12%. That is, the stock should return 12% above the risk-free rate of 2%, or 14%. The standard deviation is not relevant to this computation.

If the Administrator has summarily suspended an investment adviser representative's registration, the registrant may request a hearing by written request and the hearing will be granted within A) 60 days B) 30 days C) 45 days D) 15 days

15 days

An analyst estimates that a stock has a 40% chance of earning 10%, a 40% chance of earning 12.5%, and a 20% chance of earning 31%. What is the probable return of this stock? A) 15.20% B) 7.58% C) 14.17% D) 13.00%

15.20% The probable return is computed by taking the probabilities and adding them together. It looks like this: 40% x 10% = 4% 40% x 12.5% = 5% 20% x 31% = 6.2% all of which total 15.2% probable return.

Given the following annual returns, what are the median and mode returns, respectively? Year 1Year 2Year 3Year 4Year 515%2%5%−7%0%

2.00%; no mode exists

Use the following chart to answer this question Equity100%35%20%0%Fixed income0%65%80%100%High return45.4%34.2%31.3%28.7%Low return-7.4%5.5%8.2%6.5%Avg. return18.8%19.2%16.5%14.2%Std. dev.12.2510.9510.0210.46 Which of these portfolio allocations would you expect to show the least volatility over the next year? A) 0%/100% B) 20%/80% C) 100%/0% D) 35%/65%

20%/80% This imposing-looking question should take 10 seconds to do. When the question is dealing with volatility, look for the standard deviation. The portfolio with the lowest (the 20/80 at 10.02) is the least volatile, the one with the highest (100/0 at 12.25) is the most volatile.

If a customer is concerned about interest rate risk, which of the following securities is least appropriate?

25-year municipal bonds

GEMCO Securities, Inc., a broker-dealer registered in the state, has over 10,000 clients ranging from small individual accounts to substantial institutions. GEMCO has determined that the most efficient way to maintain contact with its clients is through electronic communications. Under the USA, these emails must be retained by the broker-dealer for a minimum of A) 8 years B) 3 years C) 2 years D) 5 years

3 years

An analyst is reviewing the financial statements of Penta Ltd. Over the period shown, Penta has sales of $5 million, net profit of $1.5 million, annual bond interest charges are $500,000, and total assets are $2 million. Penta's net profit margin is A) 35%. B) 20%. C) 30%. D) 25%.

30%. Explanation Profit margin = Net profit ÷ sales = $1.5 million ÷ $5 million = 30%. Profit margin is based on operating costs. Because interest on bonds is a fixed expense, it is not included in the computation. As is often the case, there is more information supplied than needed.

A hedge fund with a 2-plus-20% fee structure has equal probabilities of a 10% loss or a 30% gain in its first year. The probable return to an investor in the fund for the first year is closest to A) 5.2%. B) 8.8%. C) 17.6%. D) -2.0%.

5.2%. (With a 30% gain, the fund would earn fees of 2% + 0.20(30% - 2%) = 2% + 0.20 (28%) = 2% + 5.6% = 7.6%. With a 10% loss, the fund would only earn its management fee of 2%. To the investor, the expected return is 0.5(-10% - 2%) = 0.5 (-12%) = -6% + 0.5(30% - 7.6%) = -6% + 0.5 (22.4%) = -6% + 11.2% = 5.2%.)

Expressed as a percentage, what is the total return on a 1-year, newly issued (365 days to maturity) zero coupon debt obligation priced at 95?

5.26%

Bond X has an internal rate of return (IRR) of 7%. Bond Y has an IRR of 9%. Both bonds pay interest semiannually. If the required rate of return is A) 7%, the net present value (NPV) of Bond Y will exceed the NPV of Bond X. B) 7%, the net present value (NPV) of Bond X will exceed the NPV of Bond Y. C) 9%, both bonds will have a positive NPV. D) 9%, the net present value (NPV) of Bond X will exceed the NPV of Bond Y.

7%, the net present value (NPV) of Bond Y will exceed the NPV of Bond X. *We know that when a bond's IRR equals the required rate of return (the discount rate), the NPV of that bond is zero. That is the case with Bond X when the required rate of return is 7%. When the bond's IRR is above the required rate of return, it has a positive NPV. That is the case with Bond Y whose IRR is higher than the 7% required return. With a required return of 9%, Bond X has a negative NPV and Bond Y's NPV is zero. That is the technical explanation. The simple explanation is to compare the IRR with the required rate of return. Anytime the IRR is above the required rate, you've got a good deal (and that is what a positive NPV tells us).

The following table shows the individual weightings and expected returns for the 3 stocks in an investor's portfolio: Stock Weight E(Rx) V 0.40 12% M 0.35 8% S 0.25 5% What is the probable return of this portfolio? A) 8.33% B) 8.85% C) 9.55% D) 9.05%

8.85%

A letter of intent for a mutual fund purchase may be backdated to include previous investments in the same fund during the past A) 30 calendar days B) 10 business days C) 5 business days D) 90 calendar days

90 calendar days

To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least what percent of its taxable income to shareholders annually in the form of dividends? A) 70% B) 90% C) 75% D) 50%

90%

Kate, age 59, has an investment portfolio exceeding $250,000. She considers herself a moderate to conservative investor. To generate additional income, she is anticipating adding bonds to her portfolio. She lives in a state that does not have an income tax and she is in the 28% federal income tax bracket. Which of the following bonds would be the best recommendation for her portfolio? A) Bond A, A-rated corporate debenture with a 6.5% coupon rate B) Bond D, AAA-rated Treasury note with a 2.55% coupon rate C) Bond B, BBB-rated municipal bond with a 3.75% coupon rate D) Bond C, CCC-rated corporate debenture with an 8% coupon rate

A) Bond A, A-rated corporate debenture with a 6.5% coupon rate

Which of the following business accounts does not require considering the suitability of the owners? A) C corporation B) Sole proprietorship C) General partnership D) S corporation

A) C corporation Because the C corporation is an entity separate from its shareholders, suitability for a C corporation account is based solely on the company itself. All of the others provide flow-through of income and loss to the individual owners so it is important to view the collective suitability of the individual owners (or single owner in the case of the sole proprietorship).

If the owner of a $1 million IRA leaves it to his daughter, which of the following best describes the income tax treatment to the daughter? A) She will pay income taxes on the full amount she withdraws each year. B) She will pay income taxes only on a portion of the withdrawals which exceed $1 million. C) She will pay income taxes on the full $1 million immediately. D) She will pay no income taxes because the estate taxes have already been paid.

A) She will pay income taxes on the full amount she withdraws each year.

A benefit of waiting until the age of 70 to claim Social Security benefits is that A) benefits are increased by 8% for each year from the full retirement age. B) Medicare benefits are increased. C) a higher percentage of the monthly benefit is exempt from income taxes. D) the income tax rate is reduced once the claimant reaches 70.

A) benefits are increased by 8% for each year from the full retirement age. If an individual delays taking Social Security until age 70, the benefit is increased by 8% for each year from the full retirement age. If full retirement age is 66, four years at 8% means the payout is 132% of the base amount. Medicare (Part A) goes into effect at 65 and income tax rates do not change at 70.

A client of a broker-dealer is obligated to replace stock she sold after borrowing it from the broker-dealer. From this information, you can conclude that she A) engaged in a short sale of the stock B) was front running C) took a short position in a put option D) took a short position in a call option

A) engaged in a short sale of the stock

The capital asset pricing model (CAPM) is an investment theory that serves as a model for A) pricing securities based on their systematic risk B) pricing securities based on their unsystematic risk C) pricing securities based on their total risk D) measuring the correlation between a security and the overall market

A) pricing securities based on their systematic risk

An investment adviser affiliated with a broker-dealer would be considered to be maintaining custody when A) receiving a check made payable to that broker-dealer B) charging fees on an hourly basis C) having the power to make buy-and-sell decisions in an account D) receiving performance-based compensation

A) receiving a check made payable to that broker-dealer Under the NASAA Model Rule on Custody Requirements for Investment Advisers, when an investment adviser uses an affiliated broker-dealer as its qualified custodian, the adviser is considered to be maintaining custody. Therefore, receipt of a check made payable to the BD is acceptable (it does not have to be forwarded).​ Discretion is not custody and the method of compensation has nothing to do with custody. Don't confuse that with the case where the IA can debit the client's account for fees—that would be custody—but whether the fees are hourly, performance-based, or any other method is not related to custody.

Jimmy Merchant is an agent with FLATT securities, a registered broker-dealer. When Jimmy submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT A) the current market price of the security B) the account number C) the broker-dealer's name D) Jimmy's name

A) the current market price of the security

All of the following are true of government agency bonds EXCEPT A) they are direct obligations of the U.S. government B) they trade openly C) older ones have coupons attached, new ones are book entry D) they are considered relatively safe investments

A) they are direct obligations of the U.S. government

All of the following are true about GNMAs EXCEPT A) they are backed by the U.S. government B) interest is paid semiannually C) interest on GNMAs is not exempt from state and local taxes D) they provide funds for residential mortgages

B) interest is paid semiannually GMNAs make payment monthly, unlike virtually all other debt securities, which make payments semiannually

Under the USA, which of the following fits the definition of a sale? A) Issuing a prospectus B) Solicitation of an offer to buy a security for value C) Attempt to dispose of a security for value D) Contract to dispose of a security

B) Solicitation of an offer to buy a security for value

Which of the following statements accurately captures the significance of the Sharpe ratio? A) Its use is limited to portfolios rather than individual securities. B) The higher the Sharpe ratio is, the better the risk-adjusted performance of the portfolio. C) It measures the degree to which the fund's performance can be attributed to the index against which it is benchmarked. D) It measures the dispersion of the fund's returns over a period of years.

B) The higher the Sharpe ratio is, the better the risk-adjusted performance of the portfolio. The Sharpe ratio measures the fund's return over and above the risk-free rate. The higher the Sharpe ratio, the better the risk-adjusted performance of the portfolio and the greater the implied level of active management skill.

Publicly traded corporations are subject to an annual audit of their financial records. Those audits must comply with GAAP (generally accepted accounting principles). When preparing to recommend a stock to a customer, you would most likely want to see that the auditor gave A) a certified opinion. B) an unqualified opinion. C) a qualified opinion. D) a comprehensive opinion.

B) an unqualified opinion.

Under ERISA, a fiduciary must act in all of the following ways EXCEPT A) in accordance with the governing plan documents unless they are not consistent with ERISA B) confining investments to only those most likely to achieve growth C) solely in the interest of plan participants and beneficiaries D) with care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character

B) confining investments to only those most likely to achieve growth

Under the Securities Exchange Act of 1934, which of the following would NOT be considered associated with XYZ Corp., a broker-dealer? A) Arvin, one of XYZ's agents B) Brian, an XYZ vice president C) Robert, a client who owns 1,000 shares of XYZ's voting stock D) Paula, who is on XYZ's board of directors but who has no other connection with the firm

C) Robert, a client who owns 1,000 shares of XYZ's voting stock

A new client's principal objective is income with a moderate degree of capital preservation. When reviewing his existing portfolio, you notice that the client's bond holdings are evenly split between those maturing in the next 1 to 2 years and those maturing in the next 10 to 11 years. This indicates that the client has been using which of the following strategies? A) Bullet B) Barbell C) Contrarian D) Ladder

Barbell

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Sell limit B) Buy limit C) Sell stop D) Buy stop

Buy stop

Which of the following orders would be most likely to add fuel to a bullish stock market? A) Sell limit B) Sell stop C) Buy limit D) Buy stop

Buy stop

If an investor purchases 500 shares of an aggressive growth stock, which strategy would limit his downside risk? A) Writing 5 straddles B) Writing 5 puts on the stock C) Buying 5 calls on the stock D) Buying 5 puts on the stock

Buying 5 puts on the stock A put gives the investor the right to sell stock at a set price (the strike price) for a period of time, and protects against losses below the strike price. Buying calls can protect a short stock position. If the customer is long stock, the purchase of calls on that security increases leverage and risk. Writing a put creates the obligation to buy more stock at the strike price, which increases downside risk.

If a natural person files an initial application for state registration as an investment adviser representative on October 1, the registration will most likely expire A) the registration does not expire until the person resigns, retires, or is expelled by the Administrator B) on a date set by the Administrator of that state C) December 31 of that year D) on the anniversary date of the following year

C) December 31 of that year

If a federal covered adviser's fiscal year ends on November 30, 2017, it must file its annual updating amendment to its Form ADV no later than A) January 18, 2018 B) December 31, 2017 C) February 28, 2018 D) March 30, 2018

C) February 28, 2018

Which of the following are prohibited practices? I. An investment advisory firm organized as a partnership failing to inform its clients of the departure of a partner with a very small interest in the partnership II. An investment advisory firm charging an annual fee equal to 2% of the first $250,000 in assets under management, 1% of the next $500,000, and 0.5% for everything in excess of $750,000 III. Without client consent, the majority stockholder of a registered investment adviser pledging his stock as collateral for a loan taken out by the firm to expand its services IV. Engaging in agency cross transactions A) I and II B) I and IV C) I and III D) III and IV

C) I and III I. An investment advisory firm organized as a partnership failing to inform its clients of the departure of a partner with a very small interest in the partnership III. Without client consent, the majority stockholder of a registered investment adviser pledging his stock as collateral for a loan taken out by the firm to expand its services

Investment adviser representatives are often called upon to help clients select an appropriate mutual fund. When making a recommendation, which of the following would not be a consideration? A) The fund investment objective B) The fund's expense ratio C) The fund's net asset value per share D) The portfolio manager's tenure

C) The fund's net asset value per share

Which of the following statements regarding a zero-coupon corporate bond is TRUE? A) Bonds selling at a premium have a yield lower than the coupon rate. B) These bonds have higher reinvestment risk as to interest than bonds paying semiannual interest. C) The investor has phantom income, which must be reported on an annual basis. D) The investor reports the difference between the purchase price and maturity value as ordinary income at maturity.

C) The investor has phantom income, which must be reported on an annual basis. In general, the most passive investment style for a portfolio would be A) buy and hold. B) value. C) contrarian. D) indexing. On a taxable zero-coupon bond, the annual imputed interest is reported for tax purposes. Because this income is not actually received annually, it is referred to as phantom income. Zero coupon bonds always sell at a discount from their maturity value - never at a premium and one risk that zero coupon bonds avoid is reinvestment risk because there are no interest payments to reinvest.

A TIPS bond with a par value of $1,000 has a coupon rate of 4%. During years 1 and 2, the inflation rate has been 6%. What effect will this have on the TIPS 2½ years later? A) The next interest payment will be $46.37. B) The principal value will be $1,080. C) The next interest payment will be $23.19. D) The next interest payment will be $20.00.

C) The next interest payment will be $23.19. On a semiannual basis, the principal value of a TIPS is increased by that year's inflation rate. A TIPS bond adjusts principal every 6 months based on the inflation rate. With an annual inflation rate of 6%, each 6 months the principal will increase by 3% compounded. Because the question is asking about 2½ years later, there will be 5 periods (2 each year plus the first half of the 3rd year). Using the calculator at the testing center, you would enter the $1,000 initial par value and then multiply that times 103% five times to arrive at $1,159.27. Then, multiply that times the semiannual coupon rate (2%) and the result is $23.19. In almost every case, the "shortcut" will work. That is, if it was not a TIPS bond, then the interest would simply be 2% of $1,000, or $20. That will always be one of the choices—you look for the one that is a bit higher.

An employee is offered a nonqualified stock option with an exercise price of $20 per share. If the option is exercised when the current market value of the stock is $30, the employee A) is taxed on $20 per share as if it were salary B) is taxed on $30 per share as if it were salary C) is taxed on $10 per share as if it were salary D) has a capital gain of $10 per share

C) is taxed on $10 per share as if it were salary

All of the following statements regarding technical analysis are correct except A) technical analysts rely on charts to predict the future prices of stocks. B) technical analysts attempt to predict the future movement of stock prices based on past trends. C) technical analysts rely heavily on financial ratios in their analysis of stocks. D) technical analysts use terms such as trendline, support, and resistance in analyzing stocks.

C) technical analysts rely heavily on financial ratios in their analysis of stocks.

A state-registered investment adviser would like to employ the services of an individual as a solicitor to help bring in more business. The solicitor will be compensated by receiving a percentage on all assets placed under management. In order to do this, all of the following must be complied with except A) the terms of the investment adviser's compensation must be spelled out B) disclosure of the arrangement must be made to the clients if it results in an increased cost to advisory clients C) the clients must sign the advisory contract at the same time that they receive the investment adviser's brochure D) the solicitor must be registered as an investment adviser representative in order to receive compensation based upon advice

C) the clients must sign the advisory contract at the same time that they receive the investment adviser's brochure

If a corporate bond is a convertible bond, this means that A) the owner of the bond may exchange it for a bond paying a higher coupon rate B) the owner of the bond may exchange it for a debenture C) the owner of the bond may exchange it for a set number of shares of stock D) the corporation may redeem the bond before its maturity date

C) the owner of the bond may exchange it for a set number of shares of stock

Which of the following is NOT a type of diversification that is achieved by investing in international equities? A) Geographic B) Asset class C) Currency D) Style

D) Style

Under the SEC's Marketing Rule for Investment Advisers, which of the following is true with regard to advertising? A) The advertisement may refer to any formula, charting device, or graphing method provided a disclaimer is included stating there is no assurance that the same results will be obtained in the future. B) The advertisement may offer free services for a nominal charge. C) The advertisement may refer to specific past recommendations if they reflect the actual performance of a client's portfolio. D) The advertisement may use testimonials from clients with proper disclosures.

D) The advertisement may use testimonials from clients with proper disclosures.

All of the following statements regarding a closed-end investment company whose shares are listed on the NYSE are true except A) it is a type of management company B) it sells at the market price based on supply and demand C) it differs from a mutual fund D) it may redeem its own shares

D) it may redeem its own shares A closed-end investment company does not redeem its own shares.

Flexible premium payments are a feature of A) variable life B) term life C) whole life D) universal variable life

D) universal variable life

A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable? A) Treasury bonds B) ETNs C) Insured bank CDs D) ETFs

ETNs The question describes an individual with a low risk tolerance, so the Treasury bonds and CDs would certainly be considered appropriate. Because ETNs are a debt security backed solely by a single issuer while an ETF based on a specific index of debt securities represents a large group of issuers, they are only suitable for those who can understand and take the risks involved.

Alvin's spouse is a trustee of a trust established by Henrietta Flood, which directs income from the trust be paid to Alvin, for as long as he lives. Alvin's son, Floyd, will receive the principal upon Alvin's death. Floyd would like to receive some of the principal before Alvin's death, and Alvin does not object. How should his spouse, the trustee, act in this situation? A) Distribute all of the principal to Floyd. B) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death. C) Distribute part of the income to Floyd. D) Distribute part of the principal to Floyd.

Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death.

Which of the following analyze corporate financial statements and trends in sales and income? A) Market timers B) Fundamentalists C) Technicians D) Chartists

Fundamentalists

Which of the following would you most likely consider characteristics of a growth stock? A) Low P/E and low dividend yield B) High P/E and low dividend yield C) Low P/E and high dividend yield D) High P/E and high dividend yield

High P/E and low dividend yield Growth stocks generally have high P/E ratios and low (or no) dividends. Value stocks normally have low P/E ratios with higher dividend payouts.

A customer who seeks to supplement his retirement income and has a high risk tolerance would find which of the following securities most suitable? A) Treasury receipts B) High-yield bond funds C) Investment-grade bond funds D) Municipal GOs

High-yield bond funds

Employee contributions to a 401(k) plan are subject to Social Security taxes federal unemployment taxes federal income tax withholding state income tax withholding A) III and IV B) II and IV C) I and III D) I and II

I & II social security taxes federal unemployment taxes

Which of the following are regulated under the Securities Exchange Act of 1934? Broker-dealers Investment advisers Pension plans Transfer agents A) I and IV B) III and IV C) II and III D) I and II

I and IV Broker-dealers Transfer agents

Which of the following are examples of systematic risk? Business risk Market risk Interest rate risk Credit (default) risk A) II, III, and IV B) II and III C) I and III D) I, II, III, and IV

II and III Market risk Interest rate risk

Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) on a bond? A) NPV assumes the cash flows can be reinvested at market interest rates. B) IRR assumes the cash flows are reinvested annually. C) IRR assumes the cash flows are reinvested at market interest rates. D) NPV assumes that cash flows can be reinvested at the bond's IRR.

NPV assumes the cash flows can be reinvested at market interest rates.

One of the most important definitions found in the Investment Company Act of 1940 is that of "investment company." Included in that definition are all of the following EXCEPT A) face-amount certificate companies B) management investment companies C) unit investment trusts D) REITs

REITs

Under the Uniform Gifts to Minors Act, Ralph wants to give some stock to his brother's son, Jose. His nephew's father, Bob, is the legal guardian. If Ralph wants to name himself as custodian, which of the following needs to be done? A) Ralph must have the permission of the guardian. B) Ralph must receive legal permission to act as custodian. C) Ralph must file the proper legal documents. D) Ralph must open the account and name himself as the custodian.

Ralph must open the account and name himself as the custodian.

Which of the following categories of assets is most likely classified as an alternative asset?

Real assets

If the Consumer Price Index (CPI) is down but consumer demand is up, the economy is likely in which stage of the business cycle? A) Recovery to expansion B) Recovery to trough C) Peak to contraction D) Contraction to trough

Recovery to expansion

Regarding open-end investment companies, which of the following sales charges is based on the NAV per share? A) Redemption fee B) 12b-1 fee C) Commission D) Sales load

Redemption fee If the fund has a redemption charge (CDSC), it is based on the NAV per share, not the public offering price (POP). That is, if the client liquidated shares when the NAV was $10 per share and the POP was $10.50, the CDSC would be charged based on the $10 rather than the $10.50. Commission is not a term used with mutual funds. The 12b-1 fee is a charge against overall assets of the fund; it is not considered to be a charge related to the buying or selling of fund shares.

All investing carries risk of loss. Some positions have much higher risk than others. Among the riskiest is selling stock short. Which of the following types of orders would you recommend to a short seller as a potential hedge against loss? A) Buy stop B) Sell stop C) Buy limit D) Sell limit

Sell stop

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss? A) Sell limit B) Buy limit C) Sell stop D) Buy stop

Sell stop Explanation The risk to a long stock position is to the downside. The stock can, at least theoretically, fall to zero. To protect against a decline in the stock's price beyond the point the investor is willing to lose, it is wise to enter a sell stop order at that price. If the stock should fall to that price, the order is triggered, a market order is entered, and the stock is sold. This is why stop orders are usually referred to as stop loss orders; they keep you from losing any more money. DUPLICATE

Joan owns and operates a jewelry store, and she has contracted to purchase 5,000 Swiss watches, paying the watch manufacturer in Swiss francs 3 months from the date of contract. To protect (hedge) her currency risk, she purchases call options on Swiss francs. Which of the following statements best describes her transaction in the Swiss franc calls in light of the USA? A) She has not engaged in a securities transaction because options on foreign currencies are not considered to be securities under the USA. B) She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA. C) She has not engaged in a securities transaction because she purchased the options to hedge a business risk. D) She has engaged in a prohibited transaction because American investors are generally prohibited from trading in foreign currencies under the USA.

She has engaged in a securities transaction because options on foreign currencies are considered to be securities under the USA.

All of the following positions expose a customer to unlimited risk EXCEPT

Short 2 XYZ uncovered puts

James Stillman is an investment adviser representative with Rock, Feller, and Standard (RFS), a covered adviser with its principal office in State O. Stillman works out of an office in State P and has 4 retail clients there. In addition, Stillman has 25 retail clients in State D, 6 retail clients in State M, and 1 retail client in State O. Stillman would be required to register as an investment adviser representative in A) States P, D, and M. B) States D and M. C) State P. D) States P and O.

State P.

Under modern portfolio theory, MPT, which of the following types of risk cannot be eliminated through diversification? A) Credit risk B) Liquidity risk C) Business risk D) Systematic risk

Systematic risk

If a portfolio manager wished to reduce inflation risk, which of the following would be most appropriate to add to the portfolio? A) Preferred stock B) Fixed annuities issued by an insurance company with Best's highest rating C) Tangible assets D) AAA bonds

Tangible assets Tangible assets, such as real estate, precious metals, and other commodities, tend to keep pace with inflation. Fixed dollar investments do not.

Under NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers, which of the following statements about material conflicts of interest is (are) TRUE? Any conflicts of interest must be disclosed either orally or in writing before rendering advice. Material conflicts of interest must be disclosed in writing before rendering advice. Material conflicts relating to the adviser, adviser representative, or adviser employees must be disclosed. A) I only B) II only C) II and III D) I and III

The II and III Advisers must disclose any material conflicts of interest in writing before rendering advice. Material conflicts of interest include any compensation to be received regarding recommendations to the client from other sources in addition to the advisory fee charged and affiliations between the adviser and suppliers of related services or other investment products.

On the initial public offering, an investor buys a $10,000 Aa-rated, 20-year corporate bond with a 4% coupon rate. One year later, the prevailing market rate is 5% and the bond has had its rating increased to Aa1. Which of the following statements is most likely TRUE with reference to the current market price of this bond? A) The bond would be selling at a premium. B) The bond would be selling at a discount. C) The bond would be selling at par value. D) The yield to maturity of this bond is above 4%.

The bond would be selling at a discount.

Which of the following statements regarding an agent's authority to place orders for a client's account under NASAA's Statement of Policy on Unethical or Dishonest Business Practices of Broker-Dealers and Agents is TRUE? A) The agent may, without the client's approval, place a sell order for the purpose of avoiding losses but may not place a buy order without the client's authorization. B) The client's oral approval is sufficient for a specific order. C) Written approval from the client authorizing a stated amount of a specified security is required before placing an order. D) The agent is not required to obtain authorization to place orders for a client's account unless a conflict of interest is involved.

The client's oral approval is sufficient for a specific order.

FNK Corporation reported earnings of $2.47 per share last year on its stock, currently trading at $9.42 per share. Dividends paid out during the year totalled $0.93 per share. FNK's dividend payout ratio is closest to A) 38% B) 67% C) 27% D) 10%

The company earned $2.47 per share and paid a $0.93 dividend per share, which is just under 38% of the earnings ($0.93 ÷ $2.47 = 37.65%). Remember, the dividend payout ratio is dividends paid out of earnings made.

Which of the following statements regarding callable bonds is correct? A) They are only issued by government entities. B) They are unaffected by changes in market yields. C) They offer lower yields than comparable noncallable bonds. D) They usually provide a call risk premium.

They usually provide a call risk premium.

Which of the following is a method for determining the internal rate of return by portfolio managers without the influence of additional investor deposits or withdrawals to or from the portfolio? A) Discounted cash flow B) Time-weighted return C) Dollar cost averaging D) Dollar-weighted return

Time-weighted return

Jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery that was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following? A) Phishing B) Fraud C) Advertising D) Unethical business practice

Unethical business practice

Louis owns an investment that is an unmanaged portfolio in which the money manager initially selects the securities to be included in the portfolio and then holds those securities until they mature or the investment portfolio terminates. This statement best describes which type of investment? A) Unit investment trust B) Open-end investment company C) Closed-end investment company D) Hedge fund

Unit investment trust

Which of the following does NOT meet the compensation test for defining investment advisers under SEC Release 1A-1092? A) Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do B) An insurance agent sells a life insurance policy and receives a commission on that policy. During the sale of the insurance policy, the agent provides some securities investment advice C) Subscription payments received by a publisher of a newsletter providing impersonal securities-related advice D) A real estate agent advertises that she will give free advice regarding investing the proceeds from the sale of any home she lists

Your next-door neighbor recommends the purchase of a certain security from his broker, which you eventually do

Mary teaches physics at the local high school and makes about $70,000 per year. She could maximize her annual retirement savings by participating in A) a 403(b) and a 457 plan. B) a 403(b) plan and an IRA. C) an employer-funded 401(k) plan. D) a 403(b) plan.

a 403(b) and a 457 plan.

A U.S. dollar-denominated bond issued by a non-American company (or government), sold outside the United States and the issuer's country, but for which the principal and interest are stated and paid in U.S. dollars is best described as A) a Yankee bond. B) a Eurodollar bond. C) a Brady bond. D) a Eurobond.

a Eurodollar bond.

Your clients, a married couple, are trying to decide whether to open an account as joint tenants with right of survivorship or tenants by the entirety. You might point out to them that one of the differences to consider is that: A) a JTWROS account requires the consent of both parties to make a trade. B) a JBE account requires the consent of both parties to make a trade. C) only the JBE account avoids probate upon the death of the first tenant. D) any 2 people can open a JBE account, while JTWROS accounts are limited to married couples.

a JBE account requires the consent of both parties to make a trade. One of the unique characteristics of the joint by the entirety (JBE) account is that the consent of the other party is necessary in order for one of the parties to enter a trade. With a JTWROS account, either party can enter trades independently. Both JTWROS and JBE avoid probate and the JBE is limited to married couples only.

In general, from the choices given, the type of security offering the greatest degree of safety to an investor is A) preferred stock B) a debenture C) a mortgage bond D) common stock

a mortgage bond Debt securities, because they are an obligation of the issuer, are generally considered safer than equity securities. Secured debt is safer than unsecured debt. The only one of these debt obligations with pledged assets as security for the loan is the mortgage bond. Debentures are unsecured corporate debt obligations.

An investment adviser representative may describe dollar cost averaging to a customer as A) a form of a mutual fund withdrawal plan B) a means of purchasing more shares when share prices are high C) a program for investing that will ensure profits even in a declining market D) a funding technique that will cause the average cost per share to be less than the average price per share

a funding technique that will cause the average cost per share to be less than the average price per share

A manufacturer of soybean oil is concerned that the price of soybeans will increase over the next 6 months. The best strategy to employ would probably be

a long hedge.

A manufacturer of soybean oil is concerned that the price of soybeans will increase over the next 6 months. The best strategy to employ would probably be A) a neutral hedge. B) a short hedge. C) a long hedge. D) a trimmed hedge.

a long hedge.

Which of the following bonds is most likely to exhibit the greatest volatility due to interest rate changes? A bond with

a low coupon and a long maturity.

An investor would enter a buy stop order to hedge against a loss in A) a variable annuity wrapper B) a long stock position C) a short stock position D) a margin account

a short stock position

Steve and Haley, ages 48 and 45, respectively, invest in large-cap stocks, international stock mutual funds, and real estate. They consider themselves moderately aggressive investors. Their investment portfolio is subject to all of the following risks except

default risk.

All of the following statements regarding registration of broker-dealers under the Uniform Securities Act are true EXCEPT A) broker-dealers with discretion over client accounts may be required to post a surety bond B) no broker-dealer can be required to meet financial requirements in excess of those of the SEC C) a successor firm is exempt from paying registration fees until the renewal date D) a successor firm is exempt from filing a consent to service of process until the renewal date

a successor firm is exempt from filing a consent to service of process until the renewal date

A stock has been in a downtrend for several days. When its price decreases to near $30, many investors enter orders to buy the stock and the price increases to $31. This is most likely an example of A) a change in polarity. B) a reversal. C) a support level. D) a resistance level.

a support level.

A broker-dealer acting as a principal in a trade would

add a markup to the offering price when selling shares to a client

Western Securities, Inc. (WSI) is a broker-dealer that also offers portfolio management. One of WSI's portfolio managers notices an article on asset allocation that harmonizes with WSI's investment philosophy. If WSI should post a link to this article on its website, it would probably be considered

adoption

Probable return is A) an estimate of all of the possible returns an investment is expected to yield B) the difference between an investment's present value and its cost C) the one discount rate that equates the future value of an investment with its net present value D) the current worth of future income discounted to reflect what that income is worth today

an estimate of all of the possible returns an investment is expected to yield

When using the dividend discount model,

future expected dividends are discounted to compute the present value of the stock

An investor may expect to receive dividends from A) an ADR B) a call option C) a put option D) a warrant

an ADR An American Depositary Receipt (ADR) represents ownership in a foreign corporation, and dividends declared by the corporation are paid to the ADR owner. The currency conversion is performed by the issuing domestic bank. Options and warrants do not grant the holder the right to receive dividends on the underlying stock.

Consent of the client before completion of a trade made between the firm and a client must be made when A) an investment adviser will be acting in the capacity of a principal B) a broker-dealer will be acting in the capacity of an agent C) a broker-dealer will be acting in the capacity of a principal D) a broker-dealer will be acting as a contra party to the trade

an investment adviser will be acting in the capacity of a principal

An income-oriented customer has a discretionary account with an agent. If the agent purchases speculative growth stock on behalf of the customer, under the Uniform Securities Act, this is considered A) a matching activity B) an acceptable transaction C) an unsuitable transaction D) a wash trade

an unsuitable transaction

Under the USA, an investment adviser's current clients must be delivered a brochure A) annually​, but only​ if the adviser has neither custody nor discretion B) annually whether or not the adviser has custody or discretion C) within 48 hours of renewal D) quarterly if the adviser has both discretion and custody

annually whether or not the adviser has custody or discretion

An IAR is doing some research on a company. When viewing the corporation's financial statements, prepaid expenses would most likely be found A) as a current asset on the balance sheet. B) as an expense on the income statement. C) as a fixed asset on the balance sheet. D) as a current liability on the balance sheet.

as a current asset on the balance sheet.

A technical analyst would be least concerned with A) book value per share B) S&P 500 index C) advance/decline D) short interest

book value per share

An investor goes short 5 soybean futures contracts on the Chicago Mercantile Exchange (CME). When the contract expires, A) only the seller is obligated to perform B) only the exchange is obligated to perform C) only the buyer is obligated to perform D) both the buyer and seller are obligated to perform

both the buyer and seller are obligated to perform

An analyst uses a stock selection method that involves analyzing a specific corporation, followed by evaluating where it fits in its industry and then viewing the overall economy. The term that best describes this method is A) top-down B) bottom-up C) efficient frontier D) capital asset pricing model

bottom-up

Angela, a wealthy client of yours, has constructed her portfolio with individual common stocks that closely match the weighting of the S&P 500 index. In so doing, Angela has significantly reduced her A) systematic risk B) business risk C) market risk D) default risk

business risk

Under the USA, the term guaranteed refers to all of these EXCEPT A) principal B) capital gains C) interest D) dividends

capital gains When a security is guaranteed, that means that someone other than the issuer has guaranteed timely payment of interest and principal on a debt security, or the payment of dividends on an equity security. No one ever guarantees that the investor will have a capital gain.

When viewing a corporation's balance sheet, you would expect to see all of the following included in owner's equity except A) retained earnings. B) paid-in capital. C) cash. D) preferred stock.

cash.

Your high-net-worth advisory client has a large cash position in his money market account and is considering using the cash to purchase an investment property. You believe that the real estate investment will not provide the same returns that can be realized by investing in bonds, so you prepare a proposal that estimates the income stream and potential capital growth of a portfolio of convertible bonds currently in the firm's inventory. The recommendation is quite suitable for the client based on his current objectives. If the transaction is completed and you fail to disclose that the bonds were sold in a proprietary transaction and receive client consent, you would have A) to disclose the amount of commission on the trade confirmation B) committed a prohibited practice C) misrepresented a material fact D) not breached your fiduciary duty

committed a prohibited practice

All of the following statements regarding futures contracts are correct except A) purchasing a contract for future delivery is considered taking a long position. B) futures contracts can be written on financial assets or commodities. C) completing a futures contract requires the delivery of the commodity. D) a short position will increase in value if the underlying commodity or asset declines in value.

completing a futures contract requires the delivery of the commodity.

To determine the amount of change in the GDP from 1 year to another, both years' GDP should be converted into A) the exchange value of the dollar, as compared with major foreign currencies B) the current dollar price of gold bullion C) constant dollars D) international depositary receipts

constant dollars

A client asks her investment adviser representative what footnotes to the financial statements are for. The best reply would be that footnotes A) serve as a bibliography indicating where additional information may be obtained. B) contain information that doesn't have a place in the main body of the financial statements. C) contain a detailed history of the enterprise and its products or services. D) are used to explain how the various ratios are computed because companies recognize that many shareholders do not have a financial background.

contain information that doesn't have a place in the main body of the financial statements.

A company's working capital equals its A) current liabilities minus its current assets B) current assets minus its current liabilities C) fixed assets minus its fixed liabilities D) cash flow minus its retained earnings

current assets minus its current liabilities

A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter, but the dividend has remained the same, it may be concluded that A) current dividend yield has remained the same B) dividend yield to maturity has decreased C) current dividend yield has decreased D) current dividend yield has increased

current dividend yield has increased Current dividend yield is income dividend divided by price. If the price of a stock decreases and the dividend remains the same, dividend yield will increase.

An individual is employed by a federal covered investment adviser for the sole purpose of giving advice related to monitoring investment portfolios, but only to qualified employee benefit plans. Under the Uniform Securities Act, this individual is A) defined as an IAR because the plan is qualified B) not defined as an IAR because the individual works for a federal covered investment adviser C) defined as an IAR because the individual is rendering investment advice D) not defined as an IAR because the plan is considered an institutional client

defined as an IAR because the individual is rendering investment advice

In order to achieve its goals, an inverse ETF uses A) short selling. B) arbitrage. C) derivatives and debt. D) preemptive rights.

derivatives and debt.

Active Technicians (AT), a state-registered investment adviser serving primarily retail accounts, would be in compliance if it

did not send an annual brochure to its clients if there was no material change from the previous year

When opening an account at a broker-dealer, if the most recent copy of the firm's fee schedule is not available, NASAA recommends that the client A) does not place any assets in the account until it is provided B) selects another broker-dealer and opens the account there C) goes ahead with the account opening but refrains from trading until its receipt D) promptly notifies the Administrator of the firm's failure to comply

does not place any assets in the account until it is provided

An investor wishes to save for her retirement. She arranges to have $250 per month withdrawn from her account to be invested into a commodity fund. This type of saving plan is called

dollar cost averaging

With respect to taxation, an investment adviser representative should NOT A) consider tax implications as a way of improving a client's after-tax returns B) discuss the tax implications of investments C) draft tax and estate documents to ensure compliance with current law to provide substantial after-tax returns D) explain the taxable status of particular investments

draft tax and estate documents to ensure compliance with current law to provide substantial after-tax returns

An increase in the earnings per share growth rate from one reporting period to the next is called A) earnings momentum B) profitability. C) price-to-earnings ratio. D) finding alpha.

earnings momentum

Which of the following is a motivation for creating structured products? Structured products A) improve profits for broker-dealers. B) reduce costs to issuers. C) are less expensive for investors to buy and trade. D) improve market completeness.

improve market completeness.

All of the following are progressive taxes except A) gift taxes. B) excise taxes on cigarettes. C) estate taxes. D) personal income taxes.

excise taxes on cigarettes. Progressive taxes are those where the tax rate increases as the amount being taxed increases. The opposite of that is the regressive tax where the rate remains the same regardless of the dollar amount being taxed. Excise taxes, such as those on cigarettes, are a prime example. Whether someone purchases a pack, a carton, or a case, the tax rate is constant.

An ADR is used to A) facilitate trading in foreign securities in U.S. markets by U.S. citizens living in the United States B) reduce currency risk when investing in foreign securities C) finance foreign trade in which U.S. citizens are engaged D) facilitate trading in U.S. securities in foreign markets by U.S. citizens living abroad

facilitate trading in foreign securities in U.S. markets by U.S. citizens living in the United States

An investment adviser would be least likely to gather information about a new client

from social media.

When using the dividend discount model, A) ​​​the degree of accuracy in forecasting the price of preferred stock is less​ than​ that ​obtained by using the dividend growth model B) the discount rate is generally lower than the expected rate of return C) future expected dividends are discounted to compute the present value of the stock D) best results are obtained from stocks that pay irregular dividends

future expected dividends are discounted to compute the present value of the stock

A stop order can be used to do all of the following EXCEPT

give the broker-dealer discretion regarding time and price

Using the net present value method, a potential investment should be undertaken if the present value of all cash inflows minus the present value of all cash outflows (which equals the net present value) is A) equal to zero B) greater than zero C) less than zero D) positively correlated

greater than zero

A customer buys a 10-year 6% AAA bond at par when it was issued. Two years later, if the CPI has increased from 2% to 4%, the price of the bond most likely A) cannot be determined B) has increased C) has stayed at par D) has declined

has declined When inflation is on the rise, interest rates often rise. When interest rates increase, bond prices may be expected to decline.

Because a trust account is managed for the beneficial interest of the beneficiary, the investment adviser representative can A) have a check drawn on the account payable to the trustee for expenses B) place the securities in the trust fund in a noncustodial brokerage account C) have funds withdrawn from the account at the direction of the beneficiary D) arrange to have the trust's funds pledged to support a loan for the trustee

have a check drawn on the account payable to the trustee for expenses

It is not uncommon to find financial planners who use their home as the base of their operations. When a financial planner who works from home is also registered as an agent of a broker-dealer, she must A) ensure that her office is separate from her living quarters B) not remain open during hours when the broker-dealer is closed C) not use personal computers to store client information D) have cybersecurity policies and procedures in place to protect customer data

have cybersecurity policies and procedures in place to protect customer data

All of the following statements regarding convertible bonds are true EXCEPT A) the issuer pays a lower interest rate B) holders receive a higher interest rate C) holders have a fixed interest rate D) holders may share in the growth of the common stock

holders receive a higher interest rate

The weak form of the efficient market hypothesis A) implies that fundamental analysis is not worthwhile. B) implies that inside traders cannot earn superior risk-adjusted returns. C) reinforces the value of technical analysis. D) implies that technical analysis is not worthwhile.

implies that technical analysis is not worthwhile.

If during a given year a company has net income of $1 million and pays out dividends of $800,000, its retained earnings will A) increase by $1 million B) decrease by $200,000 C) increase by $200,000 D) decrease by $1 million

increase by $200,000

In general, the most passive investment style for a portfolio would be A) buy and hold. B) value. C) contrarian. D) indexing.

indexing. This is a close call between indexing and buy and hold. We believe that the NASAA philosophy on this would be that buy and hold does require some management after the portfolio is set up. That is, some companies go out of business or are merged into other entities or go private and that requires making new decisions. The same can happen with the companies in an index, but the investor doesn't have to make the changes. When you invest in an index, it is sort of like (with credit to Ron Popeil) "set it and forget it". Clearly, the other two choices are not passive in the same way.

The risk to bondholders that bonds may lose value during periods of increasing inflation is known as A) interest rate risk B) credit risk C) marketability risk D) reinvestment risk

interest rate risk

An investor who uses dollar cost averaging to purchase a mutual fund would A) invest in a bond fund during a falling market and a stock fund during a rising market B) purchase the same number of shares each month C) allocate assets equally among cash, stocks, and bonds D) invest the same amount of money each month

invest the same amount of money each month In the dollar cost averaging investment strategy, the amount of dollars invested each month remains constant. Accordingly, the investor will automatically buy more shares when the price is low to reduce the average cost per share.

An investor concerned about preservation of capital would be most apt to purchase A) common stock B) investment-grade corporate bonds C) warrants D) call options

investment-grade corporate bonds

An investor concerned about preservation of capital would be most apt to purchase A) common stock B) warrants C) call options D) investment-grade corporate bonds

investment-grade corporate bonds

An inverted yield curve results in part by A) declining interest rates B) investors buying long-term bonds and selling short-term bonds C) rising interest rates D) investors buying short-term bonds and selling long-term bonds

investors buying long-term bonds and selling short-term bonds

Treasury bills are A) callable B) issued in book entry form C) issued in bearer form D) issued at par

issued in book entry form

When a stock has a beta of less than 1, this indicates that

it will, on average, give a return below that of the market

When a stock has a beta of less than 1, this indicates that A) it will, on average, give a return in excess of that of a stock with a beta of greater than 1 B) it will, on average, give a return below that of the market C) it will have a high level of systematic risk D) it will have a high level of unsystematic risk

it will, on average, give a return below that of the market

When a nonspouse inherits an IRA, the beneficiary can choose from all of the following options except

keeping the money in the deceased's IRA

Included in the definition of derivative would be all of the following EXCEPT

leveraged ETFs

Among the differences between an investment in a limited partnership offering and in a corporation is that

limited partnership offerings do not pay dividends; corporations do.

Among the differences between an investment in a limited partnership offering and in a corporation is that A) only corporations issue securities. B) limited partnership offerings do not pay dividends; corporations do. C) only corporations are organized to run a business. D) limited partners take a more active role in the management of the enterprise than do stockholders of a corporation.

limited partnership offerings do not pay dividends; corporations do.

The general rules dealing with a broker-dealer extending credit for a customer to purchase securities are found in Regulation T of the Federal Reserve Board. However, Regulation T does NOT address A) initial margin requirements B) loan value of securities C) maintenance margin D) mixed margin accounts

maintenance margin

In order to compute an investor's real rate of return on a common stock holding, all of the following are necessary EXCEPT A) appreciation B) inflation rate C) dividends D) marginal tax bracket

marginal tax bracket Tax bracket is only needed to calculate after- tax return.

Writing an option provides all of the following EXCEPT A) income B) hedging C) limited downside protection when long the underlying asset D) maximum protection against loss

maximum protection against loss

One of the ways in which a simple trust differs from a complex trust is that simple trusts A) must distribute their distributable net income each year. B) are easier to prepare. C) may make distributions from the corpus of the trust. D) may retain income.

must distribute their distributable net income each year.

When contrasting call options, preemptive rights, and warrants, it would be correct to state A) all of these are issued by the underlying corporation. B) only call options and warrants have time value. C) only call options are traded on listed exchanges. D) only preemptive rights and warrants are issued by the underlying corporation.

only preemptive rights and warrants are issued by the underlying corporation.

When an investment adviser representative terminates employment with a federal covered investment adviser and then registers with a different federal covered investment adviser in the state where the individual has an office, A) the investment adviser representative and the federal covered advisers must notify the Administrator promptly B) only the terminating investment adviser must notify the Administrator C) the investment adviser representative and the employing adviser must notify the Administrator promptly D) only the investment adviser representative must notify the Administrator promptly

only the investment adviser representative must notify the Administrator promptly

A 47-year-old investor purchases a single premium deferred variable annuity from the ABC Insurance Company with an initial premium payment of $25,000. Six years later, a 1035 exchange is made to an annuity offered by the XYZ Insurance Company when the value of the account is $35,000. Seven years later, the account has a current value of $50,000 and the investor withdraws $20,000. The tax consequence of this withdrawal is A) ordinary income tax on $20,000. B) ordinary income tax on $15,000. C) ordinary income tax on $20,000 plus a 10% penalty. D) no tax until the withdrawal exceeds $25,000.

ordinary income tax on $20,000.

A term used to describe the results of subtracting a corporation's liabilities from its assets is

owners' equity.

An employer whose 401(k) plan complies with ERISA Section 404 is placing investment risk with the A) plan participant B) Internal Revenue Service C) Securities and Exchange Commission D) employer

plan participant In a 401(k) plan, a plan sponsor can shift investment risk to the employee by complying with ERISA Section 404(c) rules.

All of the following are examples of unsystematic risk EXCEPT A) financial risk B) tenure risk C) purchasing power risk D) political risk

purchasing power risk

MaryBeth Williamson is the CEO of MBW Software Associates. MBW is having an offering of common stock to investors on an intrastate basis. Williamson has been telling potential investors that the registration of the stock indicates approval by the state. Under the Uniform Securities Act, she is committing misrepresentation of

registration.

The distributable net income (DNI) of a simple trust would not include A) interest received on corporate bonds. B) reinvested capital gains. C) interest received on municipal bonds. D) dividends received.

reinvested capital gains.

Passive real estate investment would include all of the following except A) buying shares of a REIT. B) renting out single family homes. C) investing in raw land through a DPP. D) buying shares of a company that manages commercial property.

renting out single family homes. The only one of these choices where the investor is doing any work is renting out property. In each of the other cases, someone else is doing the work; a key component of passive real estate investment.

In May, an investor purchased a futures contract to purchase 5,000 bushels of wheat at $4.30 per bushel for December delivery. On settlement date, the spot price of wheat is $4.20 per bushel. For the investor, this A) represents a successful hedge B) represents a loss of $50 C) represents a loss of $500 D) contract should be left to expire

represents a loss of $500

First Growth Securities, Inc., a member of the Financial Industry Regulatory Authority (FINRA), has its main office in Illinois and is therefore A) required to register as a broker-dealer in the state of Illinois B) registered by FINRA to sell securities in Illinois C) automatically registered as a securities agent in Illinois D) a registered investment adviser licensed to sell securities in Illinois

required to register as a broker-dealer in the state of Illinois

When contrasting preemptive rights and warrants, it would be correct to state that, at issuance, A) rights have intrinsic and time value while warrants only have intrinsic value. B) rights have intrinsic value while warrants have intrinsic and time value. C) rights have intrinsic and time value while warrants only have time value. D) rights have time value while warrants have intrinsic and time value.

rights have intrinsic and time value while warrants only have time value.

A portfolio manager who routinely shifts portfolio assets to take advantage of the business cycle is said to be engaging in A) asset allocation B) correlation C) rebalancing D) sector rotation

sector rotation

An investor is long stock in a cash account and does not expect the price to change in the immediate future. His best strategy to generate income may be to

sell a call

Investment companies must send financial reports to shareholders A) semiannually B) annually C) quarterly D) monthly

semiannually

The portfolio manager of the Insatiate Bond Fund, an open-end investment company, believes that interest rates are going to increase in the near future. As such, it would be wise for that manager to A) lengthen the average duration of the portfolio. B) increase the equity portion of the portfolio. C) shorten the average duration of the portfolio. D) shift into higher-rated bonds.

shorten the average duration of the portfolio. Increasing interest rates lead to declining bond prices, regardless of the ratings. This is interest-rate risk. Those bonds with the longest duration have the most sensitivity to that risk while short-term maturities are only slightly affected. Reducing the average duration of the portfolio means that the average maturities will be shortened, thus reducing the effects of an increase to interest rates.

The price-to-earnings ratio A) indicates current cash flows B) is higher for value stocks than for growth stocks C) shows how much investors value the stock as a function of earnings to the company's market price D) reflects how liberal the company's dividend policies are

shows how much investors value the stock as a function of earnings to the company's market price

The management style that is most similar to buy and hold is

strategic management

When comparing a private equity fund to a public one, it would be incorrect to state that the private fund has A) higher risk. B) lower reporting costs. C) stronger governance. D) less liquidity.

stronger governance.

Owners of private activity municipal bonds might find themselves A) in violation of MSRB rules if proper disclosures are not made. B) taking an extraordinarily high risk. C) subject to the alternative minimum tax. D) receiving less interest than with a similar GO bond.

subject to the alternative minimum tax. The interest on private activity municipal bonds, used for things like airports, student housing, etc., is exempt from federal taxation, but is considered a preference item for the AMT.

When reviewing a corporation's financial statements, shareholders' equity is computed by

subtracting total liabilities from total assets.

Pricing of a closed-end fund is determined by A) net asset value B) supply and demand for the shares C) net asset value plus a sales charge D) net asset value plus a commission

supply and demand for the shares

When compared to mutual funds, which of the following statements regarding hedge funds is least accurate? Hedge funds A) use derivatives to a greater extent. B) are generally only appropriate for qualified investors. C) tend to be more diversified in order to hedge risk. D) can take both long and short positions.

tend to be more diversified in order to hedge risk.

Each of these would be considered an advantage of using a 529 plan rather than a Coverdell ESA to fund a child's future education except A) the 529 plan has no age limits. B) the 529 plan is counted at a lower percentage of assets when applying for financial aid. C) the 529 plan has no earnings limitation on the donor. D) the 529 plan allows for higher contribution levels.

the 529 plan is counted at a lower percentage of assets when applying for financial aid.

According to the Uniform Securities Act, a state-registered investment adviser may have custody of a customer's funds and securities if A) the Administrator has been notified of the custody arrangement B) it has received permission from the state banking authorities C) it has received the permission of the Administrator D) it does not share in the capital gains and losses of the account

the Administrator has been notified of the custody arrangement

Final approval of the annual operating budget for the United States is given by A) the Conference of Governors B) the Cabinet C) the Congress D) the president

the Congress The United States Congress is responsible for voting approval of the budget submitted by the president.

FinCEN Form 112, the Currency Transaction Report, is filed with

the Department of the Treasury

Balance sheets contain A) no reference to the accounting methods used to construct the balance sheet B) the amount of cash and cash equivalents expended during the first half of the fiscal year as opposed to the second half C) the net worth of the firm at the end of the reporting period D) gross revenues for the year

the amount of cash and cash equivalents expended during the first half of the fiscal year as opposed to the second half

The bond strategy used most often by those with a target goal is A) the laddering strategy. B) the barbell strategy. C) the duration strategy. D) the bullet strategy.

the bullet strategy. When you think of a bullet, you think of it hitting a target. That is what the bullet strategy is all about. When an investor will be making periodic investments in bonds and there is a specific future goal, such as retirement, the bullet strategy seems most appropriate.

Suzie McQueen has a very successful interior design shop she has run as a sole proprietorship. She has just celebrated her 60th birthday and has been giving thought to an eventual sale of the business. She wants your opinion on whether she should incorporate or change to a partnership. You might respond that A) the partnership form of business structure would enable Suzie to maximize her sale price B) the corporate form of business structure would be the easiest for ultimate transfer of ownership C) the partnership form of business structure would be the easiest for ultimate transfer of ownership D) the corporate form of business structure would be the least expensive to form

the corporate form of business structure would be the easiest for ultimate transfer of ownership

When shares of a closed-end investment company are purchased by an investor, the price paid is based upon: A) the current asking price B) the current bid price C) the net asset value D) the net asset value plus commission

the current asking price

Jimmy Merchant is an agent with FLATT securities, a registered broker-dealer. When Jimmy submits an order ticket to purchase securities for a client, all of the following would appear EXCEPT

the current market price of the security

A support level is the price range at which a technical analyst would expect

the demand for a stock to increase substantially.

If the risk and return profiles of all the possible risky portfolios were plotted on a graph, those portfolios that would be the most attractive to investors would lie on A) the security market line B) the y-axis C) the efficient frontier D) the capital market line

the efficient frontier

Net asset value per share for a mutual fund can be expected to decrease if

the fund has made dividend distributions to shareholders

Ebony sets up a revocable trust, naming her daughter, Sylvia, as the sole beneficiary. Ebony has appointed the Pacific Atlantic Trust Institution (PATI) as the trustee. Any income to the trust will be taxable to A) the trustee B) the beneficiary C) the grantor D) the trust

the grantor

In the secondary market, U.S.Treasury bond prices are most influenced by A) the primary dealers B) the inflation rate C) the Treasury Department D) the prime rate

the inflation rate

In the formula for determining the real rate of return, A) the marginal tax bracket is subtracted from the investment return B) the investment return is divided by the inflation rate C) the inflation rate is divided by the investment return D) the inflation rate is subtracted from the investment return

the inflation rate is subtracted from the investment return

Under the Uniform Securities Act, a registration statement for a security must be signed by A) a majority of the issuer's board of directors only B) a majority of the issuer's board of directors and the underwriter C) the issuer's chief executive officer and the underwriter D) the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors

the issuer's chief executive officer, chief financial officer, and a majority of the issuer's board of directors

The goal of modern portfolio theory (MPT) is to construct the most efficient portfolio. An efficient portfolio is one that offers A) the least risk for a given amount of return B) the lowest Sharpe ratio C) the highest correlation coefficient D) the most return for the most risk

the least risk for a given amount of return

The STU Corporation has issued common stock, preferred stock, promissory notes, and mortgage bonds. Should STU enter bankruptcy proceedings, the order of payment against claims would be A) the promissory notes, the mortgage bonds, the preferred stock, and the common stock. B) the preferred stock, the common stock, the mortgage bonds, and the promissory notes. C) the mortgage bonds, the promissory notes, the preferred stock, and the common stock. D) the mortgage bonds, the preferred stock the common stock, and the promissory notes.

the mortgage bonds, the promissory notes, the preferred stock, and the common stock.

Balance sheets contain A) the net worth of the firm at the end of the reporting period B) gross revenues for the year C) the amount of cash and cash equivalents expended during the first half of the fiscal year as opposed to the second half D) no reference to the accounting methods used to construct the balance sheet

the net worth of the firm at the end of the reporting period

One of the features of convertible preferred stock is that A) the holder is able to select the conversion price B) the owner has the opportunity to participate in the growth of the company C) the owner has the opportunity to convert the stock into the issuer's bonds D) the dividend is paid ahead of all other securities

the owner has the opportunity to participate in the growth of the company

In order to compute a client's realized holding period return, it is NOT necessary to know A) the income received B) the paper profits and losses C) the original investment D) the ending value

the paper profits and losses

Jesse Liverless is the trustee of the Short Circuit Electric Corporation 401(k) plan. Jesse would be able to reduce his ERISA fiduciary exposure if

the plan offered a broad index fund, a medium-term government bond fund, and a cash-equivalent fund

If the required rate of return is higher than anticipated in a present value calculation, the effect would be that A) the yield to maturity would increase B) the present value would be higher C) the future value would be higher D) the present value would be lower

the present value would be lower

A common stockholder's rights include all of the following EXCEPT A) preemptive rights B) the right to determine the par value of the stock C) the receipt of dividends, if declared by the board of directors D) electing the board of directors

the right to determine the par value of the stock C)

If an investor buys a utility stock with a stable 5% dividend, and after a year the investor's total return in the stock is 10%, the most likely reason for this is A) the investor reinvested the quarterly dividends B) the stock price declined C) the stock appreciated by 5% D) the company doubled its dividend payment

the stock appreciated by 5%

All of the following are characteristics of a rights offering EXCEPT A) the subscription period is up to 2 years B) the subscription price is below the current market value C) the rights are marketable D) it is issued to current stockholders

the subscription period is up to 2 years Rights offerings are usually very short-lived (30 to 45 days).

A hedge fund and a traditional mutual fund are similar in that A) both offer performance incentives to the fund manager B) both typically have low initial investment requirements C) both use long and short positions, swaps, and arbitrage D) their portfolio managers are required to adhere to the fund's stated objective

their portfolio managers are required to adhere to the fund's stated objective

One of the assumptions underlying the capital asset pricing model is that A) there are no transaction costs or taxes. B) inflation must be taken into consideration. C) only whole shares are available. D) each investor has a unique time horizon.

there are no transaction costs or taxes. The CAPM assumes frictionless markets, i.e., no taxes or transaction costs.

All of the following statements regarding broker-dealers are true except

they employ only registered investment adviser representatives

It has been a great year at Capital Funding, Inc., an SEC-registered broker-dealer that is also registered in 22 states. The company decides to share its good fortune with employees by paying a year-end bonus equal to 31% of annual salary. In order for clerical personnel to receive this bonus, A) they must be licensed as investment adviser representatives B) they must be employees of the broker-dealer C) they must be licensed as agents D) the bonus must be sales related

they must be employees of the broker-dealer

One type of alternative investment considered to be a pooled investment vehicle is the exchange-traded note. Exchange-traded notes (ETNs) are I. unsecured debt securities II. unsecured equity securities III. issued by financial institutions, such as banks IV. insured by the FDIC

unsecured debt securities issued by financial institutions, such as banks

A retiree contacts an agent to discuss investing his retirement savings of approximately $2.1 million; his investment objective is long-term growth. The representative and customer discuss the advantages and disadvantages of diversifying among 5 different mutual funds within 2 fund families, as opposed to purchasing just 1 fund. Consequently, the agent made the following purchase recommendations: XYZ Emerging Growth Class B $495,000 XYZ Research Class B $310,000 XYZ Investors Growth Stock Class B $495,000 ABC Capital Enterprise Class B $495,000 ABC Capital Opportunity Class B $310,000 Total $2,105,000. These recommendations are: A) unsuitable because Class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent B) suitable because they achieve the diversification the customer seeks C) unsuitable because the investments are not equal in amount D) suitable because the customer fully understands all of the ramifications and is satisfied

unsuitable because Class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent

A customer within 1 year of retirement informs his agent that he wants to use the equity in his house to make enough money within the year to fully fund his retirement. According to the Uniform Securities Act, the agent should A) urge the customer to reconsider his investment strategy B) construct a growth-oriented portfolio C) invest in an ultraconservative portfolio of municipal bonds D) invest the money in high-tech securities because of their unlimited potentia

urge the customer to reconsider his investment strategy

A state-registered investment adviser would be permitted to A) make annual delivery of the brochure within 150 days of the end of the fiscal year B) use Part 2 of the Form ADV to satisfy the brochure requirement C) deliver the brochure to a new client no later than 48 hours after entering into the contract D) use Part 1 of the Form ADV to satisfy the brochure requirement

use Part 2 of the Form ADV to satisfy the brochure requirement

A fundamental analyst researching a stock is concerned with all of the following EXCEPT

volume of shares traded

A common measurement used to evaluate attitudes regarding future economic conditions is the difference in yields between U.S. Treasury bonds and corporate bonds. This is known as A) Consumer Price Index. B) business cycle. C) yield spread. D) yield curve.

yield spread.

In order to comply with the NASAA Statement of Policy on Dishonest or Unethical Business Practices of Broker-Dealers and Agents, which of the following is NOT required to open a margin account for a trust?

A completed margin suitability form

On October 15, 2008, the Dow Jones Industrial Average lost 733 points, the largest single point drop in its history. After the markets closed on Tuesday, October 14th, ABC Manufacturing Company released its 3rd quarter operating results with earnings that surpassed all estimates. However, by the close of the market on October 15th, the price of the stock was down 15 points. This is an example of A) opportunity cost B) systematic risk C) business risk D) beta

B. Systematic risk (market risk) is the danger that a specific stock's price will be driven by factors largely independent of its issuer such as a severe market plunge​.

If a natural person files an initial application for state registration as an investment adviser representative on October 1, the registration will most likely expire

December 31 of that year

If a retiree is paid an annual amount equal to 30% of the average of his last 3 years' salary, which of the following retirement plans offers this type of payment?

Defined benefit ​pension

Your client has $10,000 to invest today and expects to earn an after-tax return of 8% to send his daughter to college in 12 years. Which of the following is needed to determine whether the investment is likely to satisfy the client's goal?

Expected cost of college

Which of the following statements about balance sheets are TRUE? I. Balance sheets provide a snapshot of a company's financial position on a given date. II. Balance sheets represent the relationship between a company's assets, liabilities, and stockholders' equity. III. Balance sheets provide a record of a company's earnings over a given period.

I and II

A federal covered investment adviser registered with the SEC that has offices in 5 states must do which of the following? I. Pay state filing fees if required by the Administrator II. Notify the Administrator within 1 business day if net worth falls below the required minimum III. Notice file in any of those states where required by the Administrator IV. Become licensed as a broker-dealer

I and III

Becky Biggins has an executive position with a large corporation that covers her under its defined benefit pension plan. This year, Becky's salary will top $435,000. Becky has no dependents and wishes to maximize funds that she can accumulate for her retirement. Becky could (select 2) I. not open a traditional IRA II. open a traditional IRA but would not be able to deduct her contributions III. open a Roth IRA IV. not open a Roth IRA

II and III Anyone with earned income can open a traditional IRA. Deductibility of contributions may be disallowed if the individual is covered under a corporate plan and has earnings in excess of a certain level. Becky's salary exceeds the maximum permitted for a single person so her contributions would be made with after-tax dollars. In the case of a Roth, nothing is deductible, so it doesn't matter if you are covered at work. However, Becky's salary is far in excess of the maximum permitted for a single person to contribute to a Roth IRA.

NASAA's Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers states that it is unethical for an investment adviser to I. lend money to an investment adviser representative registered with the firm II. lend money to a bank that is a client of the advisory firm III. earn a fee that is based on a sliding scale depending on the amount of assets under management IV. borrow money from a mortgage broker who is an advisory client of the firm

II and IV.

Under the Uniform Securities Act, an investment adviser may legally have custody of money or securities belonging to a client if the investment adviser has insufficient net worth or is not appropriately bonded Administrator has not issued a rule prohibiting custody investment adviser does not also have discretionary authority over the account investment adviser has notified the Administrator that custody is maintained A) II, III and IV only B) II only C) II and IV D) I and III

II, III and IV only

Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) on a bond?

NPV assumes the cash flows can be reinvested at market interest rates.

Which of the following practices is prohibited under the Uniform Securities Act? A) Actively trading a security in which an unusually high trading volume has occurred B) Failing to inform the firm's principal of frequent oral customer complaints C) Offering services that an agent cannot realistically perform because of his broker-dealer's limitations D) Altering the customer's order prior to execution at the request of a customer, which subsequently results in a substantial loss

Offering services that an agent cannot realistically perform because of his broker-dealer's limitations

A client has purchased a nonqualified variable annuity from a commercial insurance company. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. What is the taxable consequence of this withdrawal to your client?

Ordinary income taxation on the earnings withdrawn until reaching the owner's cost basis

If a client who holds a convertible preferred stock believes the company may go bankrupt within the next 3 years, what would you advise the client to do with the stock?

Sell the security.

A client is considering the purchase of American depositary receipts (ADRs). The client is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle?

They are not subject to exchange rate, or currency, risk.

Jon, an agent with Johnson-Bayer Securities, was reacting to peer pressure to use email as a prospecting tool. He decided to highlight the exciting new process for drug delivery that was covered in the new offering prospectus when explaining why he felt the issuer found the next "aspirin." He summed up the email by stating potential investors needed to act quickly to get in on the ground floor. His decision to do so fell into the category of which of the following?

Unethical business practice

As interest rates rise, the opportunity cost of holding cash

increases.

A new client wants your recommendation on available investment options. You prepare a client profile, which reveals that the investor is 66 years of age, has a low risk tolerance, and is in a low tax bracket. The investor's primary objectives are safety and income. Of the following, the most suitable choice would be A) large-cap common stock B) a municipal bond mutual fund investing solely in AAA- and AA-rated bonds C) insured bank certificates of deposit D) a growth and income mutual fund

insured bank certificates of deposit

All of the following would flow through as a loss to limited partners except

principal repayment on partnership debt.

Perpetual Pecuniary Rewards, (PPR), is an investment adviser registered in several states. PPR is affliliated with Perpetual Rewarding Investments (PRI), a broker-dealer registered with the SEC and the same states as PPR. Through that affiliation, clients of PPR can enter into a wrap program with an annual fee between 1% and 1.75%, depending on the account's assets. When opening a new wrap account, PPR must provide the client with a written disclosure statement containing at least the information

required by Appendix 1 of Form ADV Part 2A,

A management investment company owns portfolio securities with a current market value of $100 million. The company owes $10 million for securities purchased but not yet paid for and accrued management fees of $5 million. If there are 2,611,437 shares outstanding and the current asking price of the shares is $36.38 per share, it would be correct to state that this investment company is

selling at a premium.

The primary responsibility for supervising the activities of an investment adviser representative who is affiliated with a federal covered investment adviser lies with

the investment adviser the IAR represents

Which of the following would be permitted to contribute to an IRA? I. An individual whose sole income consists of dividends and capital gains II. A divorced mother whose sole income is alimony and child support under the terms of a divorce agreement signed on October 31, 2018 III. A self-employed attorney who has a Keogh plan IV. A corporate officer covered by 401(k)

I, II, III, and IV

Which of the following statements regarding the Sharpe ratio is most accurate?

It measures the portfolio's return over and above the risk-free rate divided by the standard deviation of the portfolio's returns.

To protect against possible inflation, your clients purchase some TIPS with a 2.5% coupon. If, over the next 6 years, the annual inflation rate is 6%, the principal value of each TIPS will be closest to A) $1,426 B) $1,161 C) $1,150 D) $1,360

The principal of a TIPS is adjusted every 6 months for the inflation rate. With an inflation rate of 6%, that means a 3% adjustment, twice per year. With the simple calculator provided at the test center, you would take the initial $1,000 and multiply that times 103% and continue to do that 12 times (there are 12 semiannual periods in 6 years). See the LEM for a shortcut that will always work. $1,161

The following table shows the individual weightings and probable returns, [E(Rx)], for the three stocks in an investor's portfolio: StockWeightE(Rx) V 0.40 12% M 0.35 8% S 0.25 5% what is the probable return of this portfolio?

9.05% Multiplying the weight of each asset by its expected return, then summing, produces: Probable return = 0.40(12) + 0.35(8) + 0.25(5) =8.85%.

If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate?

A limited liability company (LLC)

Which of the following regarding the registration of investment advisers and their representatives is TRUE?

ABC Advisers, Inc., registered with the Administrator, employs an investment adviser representative who left the employment of another investment advisory firm 6 months ago. ABC must notify the Administrator of this association promptly.

Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a longtime investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her IRA. Which of the following mutual funds is the most suitable for this customer?

ABC Equity Income Fund

The Affray Compassionate Finance Company (ACFC) is offering $100 million of 150-day commercial paper for sale in State L. The paper is available in minimum denominations of $100,000 and has been rated AA by a leading rating organization. Who of the following would be required to register as an agent in State L in order to legally sell this security in the state? A) An investment adviser who recommends this security to clients. B) Because this security is exempt from registration, offers and sales can be made without registration as an agent. C) An agent of a broker-dealer registered in the state. D) An employee of the Affray Compassionate Finance Company who receives a 1% commission on sales.

An agent of a broker-dealer registered in the state.

A customer purchases stock for $40 per share and holds it for 1 year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer's tax bracket is 30%, what is the after-tax rate of return?

21.75% The customer's return on the stock includes the $10 per share short-term capital gain ($50 − $40) plus the $2 qualifying dividend (quarterly dividend of $0.50 × 4). Remember, an asset must be held for more than 12 months for the gain to be long-term. After-tax rate of return is found by computing the total after-tax earnings. Short-term gains are taxed at the same rate as ordinary income, and qualifying dividends are taxed at a maximum rate of 15% (except for very high income earners—not tested). The tax on the $10 gain is $3 ($10 × 30%), and the tax on the $2 qualifying dividend is $0.30 ($2 × 15%). The investor's total return is the $12 total minus the $3.30 in taxes, or $8.70; $8.70 divided by the original investment of $40 results in an after-tax return of 21.75%.

If the current risk-free rate is 4%, and the expected return from the market is 10%, what return should we expect from a security that has a beta of .9?

9.4% Required return = 4% + ([10% - 4%] × .9) = 4% + (6% x .9) = 4% + 5.4% = 9.4%.

The Uniform Securities Act authorizes the state Administrator to require I. either oral or written qualification examinations of investment adviser representatives and officers of investment adviser partnerships or corporations II. officers of investment advisers to pass a qualification examination III. an applicant for initial registration to publish an announcement of the application in one or more specified newspapers published in the state IV. investment adviser representatives to pass a qualification examination

I, II, III, and IV

Which of the following is (are) unethical business practices of investment advisers? I. Charging a client an unreasonable advisory fee II. Guaranteeing a client that a specific result will be achieved as a result of advice that will be rendered III. Recommending an investment to a client without reasonable grounds to believe the investment is suitable for that client IV. Continuing to exercise discretionary investment authority under an oral agreement with the client

I, II, III, and IV

A client is trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are equal and your client is in a 28% marginal income tax bracket, which bond do you tell the client to purchase and why? A) The municipal bond because its equivalent taxable yield is 6.3% B) The corporate bond because the after-tax yield is 4.5% C) The municipal bond because its equivalent taxable yield is 6.6% D) The corporate bond because the after-tax yield is 6.25%

If we compute the tax-equivalent yield of the muni, we see that it is 6.6%, which is a higher return than the 6.25% on the corporate bond. The formula to get this starts by taking the investor's tax bracket and subtracting that from 100%. 100% − 28% = 72%. We then divide the muni coupon of 4.75% by the 72% and the result rounds off to 6.6%.

Which of the following statements is correct in relation to the efficient frontier? A) It represents the maximum return for a given level of risk. B) It identifies the required rate of return on a particular stock. C) It implies an inefficiency in stock valuations. D) It allows an investor to create a risk-free portfolio.

It implies an inefficiency in stock valuations.

Jefferson, Adams, and Washington (JAW) is a pension consulting firm whose only office is on Constitution Avenue in Washington, D.C. JAW has only one advisory client—a U.S. government employees pension fund with assets of $4 billion. What are this firm's registration requirements?

It may choose to register with either the D.C. Administrator or the SEC.